10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-54137

OXYSURE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	71-0960725
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

10880 John W. Elliott Drive, Suite 600, Frisco, TX  75033

(Address of principal executive offices)

(972) 294-6450

(Registrant’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   þ   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   þ   No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  þ

Our common stock is traded in the over-the-counter market and quoted on the OTCQB under the symbol “OXYS.”

The aggregate market value of the issuer’s common stock held by non-affiliates of the registrant as of  August 12, 2013, was approximately $3,547,450 based on $.80, the per share price at which the registrant’s common stock was last sold on that date.

The number of shares outstanding of the registrant’s class of $0.0004 par value common stock as of August 12, 2013 was 24,027,346.

INDEX

		Page
		Number
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements (Unaudited)	1
	Condensed Balance Sheets – June 30, 2013 and December 31, 2012	1
	Condensed Statements of Operations – For the three and six months ended June 30, 2013 and 2012	2
	Condensed Statements of Cash Flows – For the six months ended June 30, 2013 and 2012	3
	Condensed Notes to Financial Statements	4 – 24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	35
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults upon Senior Securities	36
Item 4.	(Removed and reserved)	36
Item 5.	Other Information	36
Item 6.	Exhibits	36
SIGNATURES		37

PART I - FINANCIAL INFORMATION

ITEM 1.   CONDENSED FINANCIAL STATEMENTS

OXYSURE SYSTEMS INC.

 CONDENSED BALANCE SHEETS

	June 30,			December 31,
	2013			2012
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	96,207		$	13,514
Accounts receivable		80,917			18,487
Inventory		288,523			221,345
Total current assets		465,647			253,346
Property and equipment, net		23,516			27,599
Intangible assets, net		407,462			418,479
Other assets		469,899			516,373
TOTAL ASSETS	$	1,366,524		$	1,215,797
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued expenses	$	724,150		$	595,655
Capital leases payable - current		308,526			296,116
Notes payable - current		462,268			398,589
Deferred revenue		261,726			499,225
Total current liabilities		1,756,670			1,789,585
Long-term liabilities
Capital leases payable		2,304			2,265
Notes payable		76,072			76,072
Total long-term liabilities		78,376			78,337
TOTAL LIABILITIES		1,835,046			1,867,922
COMMITMENTS AND CONTINGENCY
STOCKHOLDERS’ DEFICIT
Preferred stock, par value $0.0005 per share; 25,000,000 shares authorized;
768,750 Series A convertible preferred shares issued and outstanding as of June 30, 2013 and 818,750 shares issued and outstanding as of December 31, 2012.		384			409
Common stock, par value $0.0004 per share; 100,000,000 shares authorized;
23,685,846 shares of voting common stock issued and outstanding as of June 30, 2013 and 22,548,678 shares issued and outstanding as of December 31, 2012.		9,470			9,016
Common stock, subscribed but not issued, par value $0.0004 per share; 100,000,000 shares authorized;
483,529 shares of voting common stock subscribed but not issued as of June 30, 2013 and 0 shares subscribed but not issued as of December 31, 2012.		193			-
Additional paid-in capital		14,142,511			13,597,117
Accumulated deficit		(14,621,080	)		(14,258,667	)
TOTAL STOCKHOLDERS’ DEFICIT		(468,521	)		(652,125	)
TOTAL LIABILITIES  AND STOCKHOLDERS’ DEFICIT	$	1,366,524		$	1,215,797

See accompanying notes to condensed financial statements

1

OXYSURE SYSTEMS INC.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the three months ended June 30,						For the six months ended June 30,
	2013			2012			2013			2012
Revenues, net	$	476,071		$	62,891		$	716,491		$	90,775
Cost of goods sold		152,472			25,156			205,653			37,859
Gross profit		323,599			37,735			510,838			52,916
Operating expenses
Research and development	$	183,447		$	1,175		$	220,158		$	1,235
Sales and marketing		133,730			18,134			192,077			20,564
Other general and administrative		194,803			237,445			431,097			518,477
Loss from operating expenses		(188,381	)		(219,019	)		(332,494	)		(487,360	)
Other income (expenses)
Other income (expense)		19,026			58,009			19,026			58,718
Interest expense		(23,254	)		(57,462	)		(48,489	)		(115,316	)
Total other income (expenses)		(4,228	)		547			(29,464	)		(56,599	)
Net loss	$	(192,609	)	$	(218,472	)	$	(361,958	)	$	(543,958	)
Basic and diluted net income (loss) per common share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)
Weighted average common shares outstanding:
Basic and diluted		23,167,439			19,807,432			22,917,864			18,825,947

See accompanying notes to financial statements

2

OXYSURE SYSTEMS INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the six months ended June 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(361,958	)	$	(543,958	)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation		9,554			81,818
Amortization of intangible assets		14,978			14,883
Prior period adjustment		(455	)		-
Amortization of debt discount and warrant fair values related to convertible loans		32,472		104,611
Amortization of discount on notes payable		6,206			6,206
Amortization of other assets		46,474			-
Changes in deferred rent and leasehold improvement allowance		20,625			(43,386	)
Issuance of common stock options to employees as compensation		(12,060	)		17,209
Issuance of common stock for compensation		1,525
Issuance of common stock in exchange for services		19,023			-
Issuance of common stock in connection with research & development arrangements	5,550		-
Changes in current assets and liabilities:
Accounts receivable		(62,430	)		(8,370	)
Inventory		(67,179	)		118
Accounts payable and accrued liabilities		107,870			32,985
Deferred revenue		(237,500	)		155,613
NET CASH USED IN OPERATING ACTIVITIES		(477,305	)		(182,273	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of intangible assets		(3,961	)		-
Other assets		-			-
Purchases of property and equipment		(5,471	)		-
NET CASH USED IN INVESTING ACTIVITIES		(9,432	)		-
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds, net		25,000			47,953
Payment of capital leases		12,449			(3,871	)
Proceeds from issuance of common stock for cash		59,617			-
Proceeds from common stock subscribed		468,864			-
Proceeds from exercise of common stock options and warrants		3,500			95,225
NET CASH PROVIDED BY FINANCING ACTIVITIES		569,430			139,307
Net change in cash and cash equivalents		82,693			(42,966	)
Cash and cash equivalents, at beginning of period		13,514			65,118
Cash and cash equivalents, at end of period	$	96,207		$	22,152
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	12,583		$	721
Income taxes	$	-		$	-
Supplemental non-cash investing and financing activities:
Promissory subordinated convertible notes converted to common stock	$	-		$	354,563
Shareholder loans converted to common stock	$	-		$	25,622
Common stock issued in connection with research & development arrangements	$	5,547		$	-

See accompanying notes to condensed financial statements

3

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies of OxySure® Systems, Inc. (“OxySure” or the “Company”) is presented to assist in understanding the Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity.

OxySure Systems, Inc. (OXYS: OTCQB) (the “Company,” “OxySure,” “we,” “us,” or “our”) was incorporated on January 15, 2004 as a Delaware corporation. The Company is located in Frisco, Texas and is a medical technology company that focuses on the design, manufacture and distribution of specialty respiratory and emergency medical solutions. The company pioneered a safe and easy to use solution to produce medically pure (USP) oxygen from inert powders. The company owns nine (9) issued patents and patents pending on this technology which makes the provision of emergency oxygen safer, more accessible and easier to use than traditional oxygen provision systems. OxySure's products improve access to emergency oxygen that affects the survival, recovery and safety of individuals in several areas of need: (1) Public and private places and settings where medical emergencies can occur; (2) Individuals at risk for cardiac, respiratory or general medical distress needing immediate help prior to emergency medical care arrival; and (3) Those requiring immediate protection and escape from exposure situations or oxygen-deficient situations in industrial, mining, military, or other "Immediately Dangerous to Life or Health" (IDLH) environments.

In 2008 the Company launched its first product utilizing this technology – a portable emergency oxygen system for lay person use, called the OxySure Model 615. On December 9, 2005, the Company received approval from the Food and Drug Administration (510K, Class II) for Model 615. The FDA approval is for over-the-counter purchase, without the need of a prescription.

The Company has, at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors.

On July 19, 2004, the Company affected a 1-for-5 reverse stock split of the Company’s common stock. All share numbers and common stock numbers, including stock options and warrants, have been retroactively adjusted to reflect the reverse stock split.

While the Company has effectively managed its working capital deficit the going concern risk remains an issue for the company to manage.  The Company has implemented, and plans to further implement several different strategies in order to help the Company ease the going concern issue.  Refer to Note 15, “Going concern” of the Notes to Financial Statements for a partial list of the Company’s plans to mitigate the going concern issue.

Basis of Presentation - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded; and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition of the Company.  The interim financial statements include all adjustments which, in the opinion of management, are necessary in order to make the financial statements not misleading.

The accompanying Condensed Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The Company's Condensed Financial Statements reflect all adjustments that management believes are necessary for the fair presentation of their financial position, results of operations, comprehensive loss and cash flows for the periods presented. The information at December 31, 2012 in the Company's Condensed Balance Sheet included in this quarterly report was derived from the audited Balance Sheet included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on April 2, 2013. Where applicable, the Company's 2012 Annual Report on Form 10-K is referred to in this quarterly report as the “2012 Annual Report.” This quarterly report should be read in conjunction with the 2012 Annual Report.

Intercompany balances and transactions, if applicable have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts for consistency with the current period presentation.

4

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period.  Actual results could differ from those estimated.

Revenue Recognition - We recognize revenue when persuasive evidence of an arrangement exists, shipment has occurred, the price is fixed or determinable, and collectability is reasonably assured.  Revenues are recognized from product sales, net of discounts and rebates.  This revenue recognition policy is applied to both customers and distributors.

Fees from licensees desiring to manufacture and distribute our products or derivative products using our intellectual property include initial license fees and royalties.  Initial license fees are generally recognized upon granting of the license to the licensee.  Royalties are recognized in the period earned.

Deferred Revenue and Income - We defer revenue and income when we invoice a customer or a customer makes a payment and the requirements of revenue recognition have not been met (i.e. persuasive evidence of an arrangement exists, shipment from a company warehouse has occurred, the price is fixed or determinable and collectability is reasonably assured). Deferred Revenue was $261,726 and $499,225 as at June 30, 2013 and December 31, 2012, respectively.

Cash and Cash Equivalents - Cash consists of all highly liquid investments purchased with maturity of three months or less to be cash equivalents. Cash and cash equivalents may at times exceed Federally-insured limits. To minimize this risk, the Company places its cash and cash equivalents with high credit quality institutions.

Inventory – Our inventory consists of raw material and components for our portable oxygen systems as well as completed products and accessories.   Inventories are computed using the lower of cost or market, which approximates actual cost on a first-in first-out basis. Inventory components are parts, work-in-process and finished goods. Finished goods are reported as inventories until the point of title transfer to the customer. We write down our inventory value for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Management has established inventory reserves to cover estimated inventory losses for all work-in-process and finished goods related to products we manufactured, as well as raw material and components for those products that had no potential use in products to be manufactured in the future. Management is required to make judgments about the future benefit of our raw materials and components. Actual reserve requirements could differ significantly from Management’s estimates, which could have a significant unfavorable impact on our future gross margins.

At June 30, 2013 inventories consisted of the following:

	June 30, 2013
Parts inventory	$	173,813
Work in process		97,785
Finished goods	$	16,926
Total inventories	$	288,523

Concentration of Credit Risk – We sell our products throughout the United States as well as in certain other countries.  Sales to its recurring customers in the United States are generally granted on net 30-day credit terms. We perform periodic credit evaluations of our recurring customers and generally do not require collateral. In general, we require prepayment on all sales to customers outside the United States. An allowance for doubtful accounts is maintained for potential credit losses, which losses historically have not been significant.

5

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

We invest our cash in deposits and money market funds with major financial institutions.  We place our cash investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument.

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable and accounts payable.  We believe that the recorded values of all of our other financial instruments approximate their fair values because of their nature and respective maturity dates or durations. The fair value of our long-term debt is determined by using estimated market prices. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1:  Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2:  Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3: Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The fair value of the majority of our cash equivalents was determined based on “Level 1” inputs. We do not have any marketable securities in the “Level 2” and “Level 3” category. We believe that the recorded values of all our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Property and Equipment – Property and equipment are recorded at cost with depreciation and amortization provided over the shorter of the remaining lease term or the estimated useful life of the improvement ranging from three to seven years. Renewals and betterments that materially extend the life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. Furniture and fixtures are depreciated over five years. Machinery and equipments are depreciated over five to seven years. Software is depreciated over three years.  Leasehold improvements are computed using the shorter of the estimated useful lives of the assets or the lease terms.  Depreciation expense was $4,671 and $40,314 for the three month periods ended June 30, 2013 and 2012, respectively.

Other Long-Lived Assets – We have two types of intangible assets – patents and trademarks.  Intangible assets are carried at cost, net of accumulated amortization.  Amortization expense for patents and trademarks was $7,489 and $7,442 for the three month periods ended June 30, 2013 and 2012, respectively.

Intangible assets with definite useful lives and other long-lived assets are tested for impairment if certain impairment indicators are identified.  Management evaluates the recoverability of its identifiable intangible assets in accordance with applicable accounting guidance, which requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. Certain events and circumstances the Company considered in determining whether the carrying value of identifiable intangible assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in its business strategy.  In determining if impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.  If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Impairment charges for patents were $0 for each of the three month periods ended June 30, 2013 and 2012.

6

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Other Assets – We record Other Assets net of accumulated amortization. Amortization expense for Other Assets was $23,237 and $0 for the three month periods ended June 30, 2013 and 2012, respectively.

Capitalization of software: The Company accounts for internal-use software and website development costs, including the development of its partner marketplaces in accordance with ASC 350-50 (Intangibles – Website cost). The Company capitalizes internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use software, as well as any external direct costs. It amortizes these costs over their estimated useful lives, which typically range between three to five years. The Company’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on management’s judgment as to the product life cycle.

Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments.  We periodically review these allowances, including an analysis of the customers’ payment history and information regarding the customers’ creditworthiness.  Actual write-offs have not been materially different from the estimated allowance. We recorded bad debt expense of $0 for each of the three month periods ended June 30, 2013 and 2012.

Research and Development Costs – Costs associated with the development of our products are charged to expense as incurred.  $183,444 and $1,175 were incurred in the three month periods ended June 30, 2013 and 2012, respectively.

Income Taxes - In accordance with Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”), we account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our Consolidated Financial Statements, but have not been reflected in our taxable income.  A valuation allowance has been established to reduce deferred tax assets to their estimated realizable value.  Therefore, we provide a valuation allowance to the extent that we do not believe it is more likely than not that we will generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets.  We recognize interest and penalties related to unrecognized tax benefits in income tax expense.

Equity Warrants - We issued warrants to purchase shares of our common stock in connection with convertible notes. In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the notes were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We record the fair value of the warrants at the time of issuance as additional paid in capital and as a debt discount to the notes.  We amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrants with the convertible notes, a beneficial conversion option is recorded as a debt discount reflecting the incremental conversion option intrinsic value of the conversion option provided to the holders of the notes. We also amortize this debt discount as interest expense over the life of the notes.  The intrinsic value of each conversion option was calculated as the difference between the effective conversion price and the fair value of the common stock, multiplied by the number of shares into which the note is convertible.

Stock-Based Compensation – We account for share-based payments, including grants of stock options to employees, consultants and non-employees; moreover, we issue warrants to the consultants and related parties.  We are required to estimate the fair value of share-based awards and warrants on the date of grant. The value of the award is principally recognized as expense ratably over the requisite service periods. We have estimated the fair value of stock options and warrants as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes model requires the input of certain assumptions.  Changes in the assumptions used in Black-Scholes model can materially affect the fair value estimates. We evaluate the assumptions used to value stock options on an annual basis. The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.

7

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by employees.  Upon the adoption of the accounting guidance, we continued to use historical volatility in deriving its expected volatility assumption as allowed under GAAP because we believe that future volatility over the expected term of the stock options is not likely to differ materially from the past. The risk-free interest rate assumption is based on 5-year U.S Treasury zero-coupon rates appropriate for the expected term of the stock options. The expected dividend assumption is based on the history and expectation of dividend payouts.  The fair values generated by the Black-Scholes model may not be indicative of the actual fair values of the equity awards, as we do not consider other factors important to those awards to employees, such as continued employment, periodic vesting requirements and limited transferability.  The amount of stock based compensation expenses is net of an estimated forfeiture rate, which is also based on historical data. For the three month periods ended June 30, 2013 and 2012, stock based compensation expense was approximately $0 and $7,695, respectively, which consisted primarily of stock-based compensation expense related to stock options issued to the employees and recognized under GAAP.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. For the three month periods ended June 30, 2013 and 2012, stock based compensation expense was approximately $0 and $0, respectively which consisted primarily of stock-based compensation expense related to stock options and warrants recognized under GAAP issued to consultants and other non-employees.

The following table shows the components of the Company’s stock based compensation expense for employees, consultants and other non-employees:

	Three months ended June 30,
	2013		2012
Common Stock options issued for compensation	$	-	$	7,695
Common Stock options and warrants issued for services		-		-
Total	$	-	$	7,695

Shipping and Handling Costs - Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of revenues.

Advertising Costs - Advertising costs are charged to operations when incurred.  We incurred $133,730 and $18,134 in advertising and promotion costs during the three month periods ended June 30, 2013 and 2012, respectively.

8

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Litigation and Settlement Costs - Legal costs are expensed as incurred. The Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) accrue the best estimate within a range of loss if there is a loss or, when there is no amount within a range that forms a better estimate, the Company will accrue the minimum amount in the range. The Company was not involved in any legal proceedings, litigation or other legal actions during the three months ended June 30, 2013.

Loss Per Share - Basic loss per share, which excludes anti-dilutive securities, is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding for that particular period. In contrast, diluted loss per share considers the potential dilution that could occur from other equity instruments that would increase the total number of outstanding shares of common stock. Such amounts include shares potentially issuable under outstanding options, warrants, convertible preferred stock and convertible notes.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows:

	Three months ended June 30,
	2013			2012
Historical net loss per share:
Numerator
Net loss, as reported		(192,609	)		(218,472	)
Less: Effect of amortization of interest expense on convertible notes		-			-
Net loss attributed to common stockholders (diluted)		(192,609	)		(218,472	)
Denominator
Weighted-average common shares outstanding		23,167,439			19,807,432
Effect of dilutive securities		-			-
Denominator for diluted net loss per share		23,167,439			19,807,432
Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)

The following outstanding options, warrants, convertible preferred shares and convertible note shares were excluded from the computation of basic and diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.

	Three months ended June 30,
	2013		2012
Options to purchase common stock		1,579,921		1,554,530
Warrants to purchase common stock		1,519,534		1,872,034
Common shares issuable upon conversion of convertible preferred stock		937,875		1,364,875
Convertible note shares outstanding		411,985		1,696,331

Restatements and Reclassifications - Certain financial statement items have been reclassified to conform to the current periods’ presentation.  These reclassifications had no impact on previously reported net loss. 

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance and disclosure requirements for reporting amounts reclassified out of accumulated other comprehensive income. The guidance requires that an entity provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP. The guidance became effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. This standard was adopted in the first quarter of 2013.

9

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 2 – BALANCE SHEET COMPONENTS

	June 30,			December 31,
	2013			2012
Cash and cash equivalents:
Cash	$	96,207			13,514
Total cash and cash equivalents	$	96,207		$	13,514
Inventories:
Total inventories	$	288,523		$	221,345
Accounts Receivable, net of allowances	$	80,917		$	18,487
Property and equipment, net:
Machinery and equipment		919,736			919,736
Leasehold improvements		547,856			547,856
Computer equipment and furniture and fixtures		242,268			236,797
Software		10,691			10,691
		1,720,551			1,715,080
Accumulated depreciation and amortization		(1,697,034	)		(1,687,481	)
Total property and equipment, net	$	23,516		$	27,599
Other Assets:
Deferred loan costs, net		199,778			224,751
Security deposits		53,274			53,274
Website development, software, URLs, net		216,847			238,348
	$	469,899		$	516,373
Accounts payable and accrued expenses:
Leasehold Improvement Allowance		-			-
Accounts payable		206,915			70,141
Accrued interest		-			-
Accrued expenses for website and software		143,286			143,286
Stockholder advances		153,983			207,472
Other accrued liabilities		219,966			174,756
Total accounts payable and accrued expenses	$	724,150		$	595,655

NOTE 3 – INTANGIBLE ASSETS

We have two types of intangible assets: patents and trademarks. We capitalize expenditures associated with patents and trademarks related to our various technologies. Capitalized costs include amounts paid to third parties for legal fees, application fees and other direct costs incurred in the filing and prosecution of patent and trademark applications. These assets are amortized on a straight-line method over their legal life.

10

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 3 – INTANGIBLE ASSETS (CONTINUED)

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable in accordance with applicable accounting guidance. Impairment charges for patents were $0 for each of the three month periods ended June 30, 2013 and 2012.

On January 15, 2004, the Company executed an Asset Purchase and Stock Transfer Agreement with entities controlled by the founder of the Company. In connection with this agreement, the Company acquired certain assets, including certain rights, title and interest to intellectual property, relating to the oxygen method and apparatus, developed by the founder of the Company prior to January 15, 2004. As consideration for the purchase, the Company issued 14,000,000 shares of common stock and a promissory note for $150,000 to these entities. The common stock was valued at $7,000 using the par value of the common stock on the date of issuance, which approximates these entities’ basis (which is not indicative of fair value). The non-recourse promissory note bore interest at 6.5% per annum and was paid in full during 2006.

The carrying values of our amortized acquired intangible assets as of the June 30, 2013 are as follows:

	June 30, 2013
	Gross		Accumulated Amortization and write off			Net
Patents	$	617,651	$	(246,499	)	$	371,152
Trademarks	$	45,723	$	(9,413	)	$	36,310
	$	663,374	$	(255,913	)	$	407,462

Of the net amount of $407,462 in intangible assets as of June 30, 2013, approximately 91% is in patents and approximately 9% is in trademarks.  Included in the $663,374 gross amount for patents and trademarks is $157,000 acquired from entities controlled by the founder of the Company in January 2004. The remaining $460,651 represents amounts paid to third parties for legal fees, application fees and other direct costs incurred in the filing and prosecution of patent and trademark applications.

NOTE 4 – NOTES PAYABLE

We have issued warrants for the purchase of shares of our restricted common stock in connection with raising equity and debt financing and for other professional services.  The fair value of warrants issued is determined in accordance with Codification topic 470-20.

Frisco Promissory Note  On April 3, 2007 we entered into a note agreement with the City of Frisco, Texas for $243,000 (the “Frisco Note”) pursuant to an economic incentive package provided through the Frisco Economic Development Corporation (“FEDC”). The note required varying annual principal payments through August 2012.  The note was non-interest bearing; however, interest has been imputed at 12.18% per annum. The unamortized discount at December 31, 2010 was $66,198. Individual annual payments were to be forgiven if certain performance targets are achieved, which include the number of full time employees, square feet occupied in the city of Frisco and the taxable value of business and personal property in the City of Frisco. The first annual payment for 2008 in the amount of $30,000 was forgiven and we recognized the entire $30,000 under “Other income” in the Statement of Operations and Accumulated Deficit for the year ended December 31, 2008.  On March 22, 2011 we entered into an Amended and Restated Performance Agreement with the FEDC. In terms of the Amended and Restated Performance Agreement, the FEDC provided us with economic assistance in the form of the renewal and extension of the outstanding forgivable loan of $213,000 together with revised performance credits over 5 years, commencing on March 22, 2011 and ending on the earlier to occur of: (i) the full payment of the economic incentives; or (ii) March 31, 2016.

11

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 4 – NOTES PAYABLE (CONTINUED)

The renewed Frisco Note requires varying annual principal payments through December 2015. The face value of the renewed note is $213,000, and the note is non-interest bearing; however, interest has been imputed at 12.34% per annum.

On December 1, 2011 we received the first performance credit from the FEDC in the amount of $26,000 pursuant to the Amended and Restated Performance Agreement. Effective December 1, 2012 we received the performance credit from the FEDC in the amount of $39,000 pursuant to the Amended and Restated Performance Agreement.

The unamortized discount at June 30, 2013 was $34,134, and the net amount of the Frisco Note as at June 30, 2013 was $113,866.

Future principal payments of this note payable are as follows:

2013	$	44,000
2014		52,000
2015		52,000
	$	148,000

Sinacola Subordinated, Convertible Notes.

Third Landlord Note; Fourth Landlord Note:

On December 10, 2009 we entered into a Rent Satisfaction Agreement (the “2009 RSA”) with our landlord, Sinacola Commercial Properties, Ltd. (“Sinacola”). In terms of the 2009 RSA we issued Sinacola two Promissory Notes pursuant to the 2009 RSA – the First Landlord Note and the Second Landlord Note – both of which were subsequently converted to our common stock.

On December 31, 2010 we entered into a second Rent Satisfaction Agreement (the “2010 RSA”) with our landlord, Sinacola. In terms of the 2010 RSA, all of our outstanding rent obligations for the 2010 financial year under our lease agreement, up to and including December 31, 2010 including, but not limited to, base rent, deferred rent, and our share of operating costs, are satisfied in full.

We issued Sinacola two Promissory Notes pursuant to the 2010 RSA, as follows:

Third Landlord Note:  The first note (the “Third Landlord Note”) is a subordinated convertible note in the principal amount of $110,000. The Third Landlord Note carries no interest and is convertible, at Sinacola’s option, into the common stock of the Company at an exercise price of $1.00 per common share on the maturity date.

Fourth Landlord Note:  The second note (the “Fourth Landlord Note”) is a subordinated convertible note in the principal amount of $110,715. The Fourth Landlord Note carries no interest and is convertible into the common stock of the Company at an exercise price of $1.50 per common share on the maturity date.  However, if the common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Fourth Landlord Note is convertible at the Company’s option.

Maturity Date – Each of the Third Landlord Note and the Fourth Landlord Note had a maturity date of October 31, 2012.

We also issued Sinacola with 143,465 penny warrants pursuant to the 2010 RSA (the “2010 Landlord Warrant”).  The 2010 Landlord Warrant is convertible into 143,465 shares of our common stock, and is exercisable in whole or in part at any time on or before December 31, 2015 at an exercise price of $.01 per share.

In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the Third Landlord Note and the Fourth Landlord Note were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We recorded the relative fair value of the warrant issued pursuant to the Third Landlord Note in the amount of $70,853 as a debt discount upon issuance, and amortized this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $39,147, at the time of issuance provided to the holder of the note, which was also amortized as interest expense over the life of the note. We recorded interest expense in the amounts of $0 for each of the three month periods ended June 30, 2013 and 2012 in connection with the Third Landlord Note.  We recorded the relative fair value of the warrant issued pursuant to the Fourth Landlord Note in the amount of $71,314 as a debt discount upon issuance, and amortized this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $34,409, at the time of issuance provided to the holder of the note, which was also amortized as interest expense over the life of the note. We recorded interest expense in the amount of $0 for each of the three month periods ended June 30, 2013 and 2012 in connection with the Fourth Landlord Note.

Fifth Landlord Note; Sixth Landlord Note:

On March 23, 2011 we entered into a third rent satisfaction agreement (the “2011 RSA”) with our landlord, Sinacola. In terms of the 2011 RSA, certain of our rent obligations for the period January 1, 2011 through June 30, 2011 under our lease agreement, including base rent and deferred rent, are satisfied in full.

We issued Sinacola two Promissory Notes pursuant to the 2011 RSA, as follows:

Fifth Landlord Note:  The first note (the “Fifth Landlord Note”) is a subordinated convertible note in the principal amount of $50,000. The Fifth Landlord Note carries no interest and is convertible, at Sinacola’s option, into the common stock of the Company at an exercise price of $1.00 per common share on the maturity date.

12

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 4 – NOTES PAYABLE (CONTINUED)

Sixth Landlord Note:  The second note (the “Sixth Landlord Note”) is a subordinated convertible note in the principal amount of $50,000. The Sixth Landlord Note carries no interest and is convertible into the common stock of the Company at an exercise price of $1.50 per common share on the maturity date.  However, if the common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Sixth Landlord Note is convertible at the Company’s option.

Maturity Date – Each of the Fifth Landlord Note and the Sixth Landlord Note has a maturity date of September 30, 2013.

We also issued Sinacola with 65,000 penny warrants pursuant to the 2011 RSA (the “2011 Landlord Warrant”).  The 2011 Landlord Warrant is convertible into 65,000 shares of our common stock, and is exercisable in whole or in part at any time on or before March 23, 2016 at an exercise price of $.01 per share.

In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the Fifth Landlord Note and the Sixth Landlord Note were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We recorded the relative fair value of the warrant issued to Fifth Landlord Note in the amount of $32,207 as a debt discount upon issuance, and amortized this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $17,793, at the time of issuance provided to the holder of the note, which we also amortize as interest expense over the life of the note. We recorded interest expense in the amount of $0 for each of the three month periods ended June 30, 2013 and June 30, 2012 in connection with the Fifth Landlord Note.  We recorded the relative fair value of the warrant issued to Sixth Landlord Note in the amount of $32,207 as a debt discount upon issuance, and amortized this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $15,540, at the time of issuance provided to the holder of the note, which we also amortize as interest expense over the life of the note. We recorded interest expense in the amount of $0 for the each of the three month periods ended June 30, 2013 and June 30, 2012 in connection with the Sixth Landlord Note.

Seventh Landlord Note; Eighth Landlord Note:

On August 15, 2011 we entered into a fourth rent satisfaction agreement (the “Second 2011 RSA”) with our landlord, Sinacola. In terms of the Second 2011 RSA, certain of our rent obligations for the period July 1, 2011 through December 31, 2011 under our lease agreement, including base rent and deferred rent, are satisfied in full.

We issued Sinacola two Promissory Notes pursuant to the Second 2011 RSA, as follows:

Seventh Landlord Note:  The first note (the “Seventh Landlord Note”) is a subordinated convertible note in the principal amount of $50,050. The Fifth Landlord Note carries no interest and is convertible, at Sinacola’s option, into the common stock of the Company at an exercise price of $1.00 per common share on the maturity date.

Eighth Landlord Note:  The second note (the “Eighth Landlord Note”) is a subordinated convertible note in the principal amount of $50,050. The Eighth Landlord Note carries no interest and is convertible into the common stock of the Company at an exercise price of $1.50 per common share on the maturity date.  However, if the common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Sixth Landlord Note is convertible at the Company’s option.

13

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 4 – NOTES PAYABLE (CONTINUED)

Maturity Date – Each of the Seventh Landlord Note and the Eighth Landlord Note has a maturity date of November 30, 2013.

We also issued Sinacola with 65,065 penny warrants pursuant to the Second 2011 RSA (the “Second 2011 Landlord Warrant”).  The Second 2011 Landlord Warrant is convertible into 65,065 shares of our common stock, and is exercisable in whole or in part at any time on or before August 15, 2016 at an exercise price of $.01 per share.

In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the Seventh Landlord Note and the Eighth Landlord Note were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We recorded the relative fair value of the warrant issued to Seventh Landlord Note in the amount of $32,223 as a debt discount upon issuance, and we amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $17,827, at the time of issuance provided to the holder of the note, which we also amortize as interest expense over the life of the note. We recorded interest expense in the amounts of $5,460 and $5,460 for the three months ended June 30, 2013 and June 30, 2012, respectively in connection with the Seventh Landlord Note.  We recorded the relative fair value of the warrant issued to Eighth Landlord Note in the amount of $32,223 as a debt discount upon issuance, and we amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $15,540, at the time of issuance provided to the holder of the note, which we also amortize as interest expense over the life of the note. We recorded interest expense in the amounts of $5,210 and $5,210 for the three months ended June 30, 2013 and June 30, 2012, respectively in connection with the Eighth Landlord Note.

14

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 4 – NOTES PAYABLE (CONTINUED)

The following table reflects the carrying values of our short-term and long-term notes payable as of June 30, 2013:

	Effective Interest Rate			Principal		Discount		June 30, 2013
Current notes payable
Sinacola, Third Landlord Note		0	%	$	110,000		-	$	110,000
Sinacola, Fourth Landlord Note		0.00	%		110,715		-		110,715
Sinacola, Fifth Landlord Note		0.00	%		50,000		-		50,000
Sinacola, Sixth Landlord Note		0.00	%		50,000		-		50,000
Sinacola, Seventh Landlord Note		41.64	%		50,050		10,920		39,130
Sinacola, Eighth Landlord Note		43.64	%		50,050		10,421		39,629
Beaufort Ventures, PLC		12	%		25,000		-		25,000
Frisco EDC		12.34	%		44,000		6,206		37,794
Total short-term notes payable				$	489,815		27,547	$	462,268
Long-term notes payable
Frisco EDC		12.34	%	$	104,000		27,928	$	76,072
Total long-term notes payable				$	104,000	$	27,928	$	76,072
Total short-term and long-term notes payable				$	593,815	$	55,475	$	538,340

15

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 4 – NOTES PAYABLE (CONTINUED)

The following table summarizes our outstanding notes payable as of June 30, 2013 and December 31, 2012:

	June 30, 2013			December 31, 2012
Current portion of notes payable	$	62,794		$	31,588
Current portion of convertible notes payable		399,474			367,001
Current portion of notes payable, net	$	462,268		$	398,589
Long-term portion of notes payable	$	104,000		$	104,000
Less: Unamortized discount		(27,928	)		(27,928	)
		76,072			76,072
Long-term portion of convertible notes payable	$	-		$	-
Less: Unamortized discount		-			-
		-			-
Long-term portion of notes payable, net	$	76,072		$	76,072

16

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 5 - SHAREHOLDERS’ EQUITY

Preferred Shares Rights

On December 31, 2005, the Company’s Board of Directors adopted a Preferred Shares Rights Agreement (the “Original Rights Agreement”).   Pursuant to the Agreement, the Board authorized the issuance of up to 5,000,000 shares of preferred stock, par value $0.0005 per share. As of December 31, 2005, the Company had authorized the issuance of 2,000,000 shares of preferred stock designated as Series A Convertible Preferred Stock (“Series A Preferred”). On March 22, 2006 the Company authorized an increase in the issuance of the Series A Preferred to 3,100,000 shares of preferred stock. On July 2, 2008 the Company further authorized an increase in the issuance of the Series A Preferred to 3,143,237 shares of preferred stock. The original issue price of the Series A Preferred is $1.00 per share. There were 768,750 and 818,750 Series A Preferred shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively.

During the three months ended June 30, 2013 the Company did not issue any shares of the Series A Preferred. During the three months ended June 30, 2013 no shares of the Series A Preferred have been converted into our common stock.

A summary of the designations and preferences of its Series A Preferred stock is as follows:

Ranking – The Series A Preferred ranks senior to common stock.

Dividends – Series A Preferred may be entitled to receive a quarterly non-cumulative dividend in the amount of $.01 per share upon approval from the Board of Directors.

Liquidation Preference – In the event of any liquidation, dissolution, or winding up of the Company, the holders of Series A Preferred are entitled to receive 100% of the original issue price of $1.00 per share.

Conversion Rights – Each share of Series A Preferred is convertible at any time, at the option of the holder into 1.22 shares of common stock, subject to adjustment. Series A Preferred are subject to automatic conversion upon consummation of underwritten offering by the Company of shares of common stock to the public, in which the aggregate cash proceeds are at least $3 million and the price paid per share is at least $5.00.

Redemption Rights – All of the Series A Preferred may be called at any time by the Company within ten years, but not prior to two years after issuance. The redemption value is $1.00 per share, plus an amount equal to all unpaid dividends thereon.

Voting Rights – The holder of each share of Series A Preferred has the right to one vote for each share of common stock into which such share of Series A Preferred could be converted.

17

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 5 - SHAREHOLDERS’ EQUITY (CONTINUED)

Common Stock

The Company has authorized 100,000,000 shares of $0.0004 par value common stock.

During the three months ended June 30, 2013:

● We issued approximately 508,350 shares of common stock valued at approximately $260,275 pursuant to common stock subscribed but not issued in a prior period.

● We issued approximately 7,500 shares of common stock in connection with research & development arrangements valued at $5,547.

● We issued approximately 2,500 shares of common stock for employee compensation valued at $1,525.

As of June 30, 2013 we had approximately $253,206 in Other stockholder equity recorded pursuant to approximately 483,529 shares of common stock subscribed for but not issued, in accordance with ASC Topic 210-10.

As of June 30, 2013 we had approximately 23,685,846 shares of common stock issued and outstanding.

NOTE 6 - STOCK OPTIONS AND WARRANTS

Equity Incentive Plans

In April 2004, our Board of Directors and the stockholders at that time approved the adoption of a Voting Stock Option Plan (“the Plan”), which provides for the issuance of stock options to eligible employees, consultants, Board members and Advisory Board members of the Company to acquire up to a maximum of 5,000,000 shares of common stock.

Our Board of Directors, which determines the number of options that will be granted, the effective dates of the grants, the option process and the vesting schedules, administers the Plan. In the absence of an established market for the common stock of the Company, the Board of Directors determines the fair market value of our common stock. Options generally expire between five and ten years from the date of grant and automatically terminate 90 days after such optionee ceases to be an eligible individual under the Plan other than by reason of death or disability.

The portion of options granted that is not exercisable on the date the optionee ceases to be an eligible individual under the Plan by reason other than death, shall terminate and be forfeited to the Company on the date of such cessation. An optionee has no right as a stockholder with respect to any shares covered by the options granted to him until a certificate representing such shares is issued to them.

Stock Options

The following table summarizes information about the number and weighted average of the options that were forfeited or expired under the Plan as at June 30, 2013:

	Employee				Non-Employee
			Weighted				Weighted
	Number		Average		Number		Average		Combined
	Of		Exercise		Of		Exercise		Total
	Options		Price		Options		Price		Options
Outstanding at March 31, 2013		1,426,741	$	0.37		18,180	$	1.15		1,444,921
Granted		135,000	$	0.25		-	$	-		135,000
Exercised		-	$	-		-	$	-		-
Forfeited/Cancelled		-	$	-		-	$	-		-
Outstanding at June 30, 2013		1,561,741	$	0.36		18,180	$	1.15		1,579,921

18

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 6 - STOCK OPTIONS AND WARRANTS (CONTINUED)

We used the following assumptions to estimate the fair value of options granted under the Plan for the three months ended June 30, 2013 and 2012:

	Equity Incentive Plans for Quarter Ended June 30,
	2013			2012
Expected terms (in years)		5-10			5-10
Volatility (weighted ave.)		65	%		26	%
Risk-free interest rate (weighted ave.)		1.41	%		1.04	%
Expected dividend rate		0	%		0	%

Risk-Free Interest Rate	The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of our stock options.
Expected Volatility	We use historical volatility in deriving our expected volatility assumption because we believe that future volatility over the expected term of the stock options is not likely to differ from the past.
Expected Term	The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by optionees.  We use historical volatility in deriving our expected volatility assumption because it believes that future volatility over the expected term of the stock options is not likely to differ from the past.
Expected Dividend Yield	The expected dividend yield of 0% is based on our history and expectation of dividend payouts. We have not paid and do not anticipate paying any dividends in the near future.
Forfeitures	FASB ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  We only records stock-based compensation expense for awards that are expected to vest. While we generally consider historical forfeitures in its estimates, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. Our estimate for forfeitures may differ from actual forfeitures. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted when we record a true-up for the difference in the period that the awards vest.  We adjust stock-based compensation expense based on our actual forfeitures on an annual basis, if necessary.

As of June 30, 2013, there were unrecognized compensation costs of approximately $0 related to non-vested stock option awards granted after April 2004.

Stock compensation cost, using the graded vesting attribute method in accordance with Codification topic 718, is recognized over the requisite service period, generally 5 years, during which each tranche (one fifth) of shares is earned (zero, one, two, three, and four years).  The value of each tranche is amortized on a straight-line basis.  For the three months ended June 30, 2013, stock based compensation expense was approximately $0, which consisted primarily of stock-based compensation expense related to stock options recognized under GAAP issued to employees.  For the three months ended June 30, 2013, there were no options exercised.

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OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 6 - STOCK OPTIONS AND WARRANTS (CONTINUED)

Warrants.

The following table summarizes our warrant activities for the three months ended June 30, 2013:

			Weighted Average
	Number Of		Exercise
	Warrants		Price
Outstanding at March 31, 2013		1,519,534	$	0.80
Granted		-	$	-
Exercised		-	$	-
Forfeited/Cancelled		-	$	-
Outstanding at June 30, 2013		1,519,534	$	0.80

NOTE 7 – COMMITMENTS AND CONTINGENCY

Leases

Operating Lease –   During 2007, we entered into a long-term non-cancelable lease for office space, which expired in October 2012.  As at June 30, 2013 we rented our space on a month to month basis while a new lease is being negotiated with our landlord.

Capital lease – During 2006 we entered into a master lease agreement with a VenCore Solutions, LLC (“Vencore”) that allowed us to lease up to $750,000 of equipment (the “Vencore Master Lease”). This maximum amount available under this lease was subsequently increased to $805,000. The Vencore Master Lease required a security deposit of 10% of the amount of each individual lease schedule, a payment of Series A Convertible Preferred Stock shares equal to 5% of the lease divided by $1.00, and 36 monthly payments of 3.33% of the lease. We have the option to purchase the equipment at the end of each lease term at the lesser of 12% of the original equipment cost or the fair market value. On March 4, 2011 Vencore agreed to a payment moratorium, which was to continue until the earlier to occur of (i) the execution and completion of a mutually agreed upon cash settlement ("Settlement"), or (ii) the execution of a mutually agreed upon repayment plan ("Plan") or February 29, 2012.

On July 9, 2012 we entered into a second moratorium agreement (“Second Payment Moratorium”) with Vencore. The Second Payment Moratorium provides for the following:

a)  The balance outstanding to Vencore remains the balance outstanding at the end of the first payment moratorium, which was $307,661.83 (“Debt Obligation”);

b)  The term of the Second Payment Moratorium (the “Moratorium Period”) shall expire on the earlier to occur of: (i) July 1, 2013;  (ii) a cash settlement or repayment plan being entered into; or (iii) a merger or acquisition of OxySure or the sale of substantially all of its assets (collectively a “Sale”);

c)  We will not be obligated to make any payments during the Moratorium Period;

d)  No late charges or interest will accrue during the Moratorium Period;

e)  Any amounts we may pay towards the Debt Obligation during the Moratorium Period shall reduce the Debt Obligation;

f)  In the event of a Sale the entire Debt Obligation shall immediately become due and payable; and

g)  Vencore shall make no demands or take any actions against us during the Moratorium Period.

In exchange for the Second Payment Moratorium, we issued to Vencore two warrants (the “Warrants”) as follows:

(a)  A warrant as to 22,500 common shares at an exercise price per share of $0.82; and

(b)  A warrant as to 32,500 common shares at an exercise price per share of $1.00.

The terms of the Warrants are 5 years each and Vencore has the ability to exercise the Warrants on a cashless/net-issuance basis.

20

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 7 – COMMITMENTS AND CONTINGENCY (CONTINUED)

Between 2007 and 2012, we entered into agreements with other finance companies (other than Vencore) to acquire equipment with interest rates ranging from 7% to 19% with three to five-year lease terms. Minimum non-cancellable lease payments required under all capital leases as at June 30, 2013 are as follows:

2013	308,526
2014	1,728
2015	576
Total	310,829
Less amounts representing interest	(510	)
Total	310,319

Legal Proceedings

The Company is subject to litigation in the normal course of business, none of which management believes will have a material adverse effect on the Company’s financial statements. As of June 30, 2013 the Company was not a party to any litigation matters.

Indemnification

Under the indemnification provisions of our customer agreements, we routinely agree to indemnify and defend our customers against infringement of any patent, trademark, or copyright of any country or the misappropriation of any trade secret, arising from the customers’ legal use of our products or services. The exposure to us under these indemnification provisions is generally limited to the total amount paid by the customers under pertinent agreements. However, certain indemnification provisions potentially expose us to losses in excess of the aggregate amount received from the customer. To date, there have been no claims against us or our customers pertaining to such indemnification provisions and no amounts have been recorded.

NOTE 8 – RELATED PARTY TRANSACTIONS

A summary of the related party financings and notes as at June 30, 2013 is as follows:

	Shareholder advances
Related party	Julian Ross (1)			Other
Amount	$	153,983		$	0
Stated interest rate		0	%		0	%
Maturity		n/a			n/a

(1) Our CEO, Mr. Ross provides us shareholder cash advances and other consideration from time to time to fund working capital.

During the three months ended June 30, 2013 we paid Timothy Hutton a total of $10,600 in interest expense related to financing and other considerations provided to us. Timothy Hutton is the spouse of Vicki Jones, a director of us.

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OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 9 – FAIR VALUE MEASUREMENTS

Effective January 1, 2009, the Company adopted new fair value accounting guidance. The adoption of the guidance was limited to financial assets and liabilities and did not have a material effect on the Company’s financial condition or results of operations.

The guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact business and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

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OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 9 – FAIR VALUE MEASUREMENTS (CONTINUED)

Level 3 — Unobservable inputs to the valuation methodology that is significant to the measurement of fair value of assets or liabilities.

Assets Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis which were comprised of the following types of instruments as of June 30, 2013:

	Total		Level 1		Level 2		Level 3
Cash (1)	$	96,207	$	96,207		-		-
Total cash equivalents as of June 30, 2013	$	96,207	$	96,207	$	-	$	-

(1) Included in cash and cash equivalents on the Company's Balance Sheet.

NOTE 10 – OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.

NOTE 11 – SEGMENT INFORMATION

We are organized as, and operate in, one reportable segment: the development, distribution and sale of specialty respiratory products and related medical products, accessories, and services. Our chief operating decision-maker is our Chief Executive Officer. Our Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of evaluating financial performance and allocating resources, accompanied by information about revenue by geographic regions. Our assets are primarily located in the United States of America and not allocated to any specific region and we do not measure the performance of our geographic regions based upon asset-based metrics. Therefore, geographic information is presented only for revenue. Revenue by geographic region is based on the ship to address on our customer orders.

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OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2013

(Unaudited)

NOTE 11 – SEGMENT INFORMATION (CONTINUED)

The following presents total revenue by geographic region for the three month periods ended June 30, 2013 and 2012:

	Three months ended June 30,
	2013		2012
Product Revenue:
United States - product sales	$	362,822	$	18,091
ROW - product sales		749		44,800
ROW - license fees/service revenue		112,500		-
Totals	$	476,071	$	62,891

NOTE 12 – GOING CONCERN

Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  We have been suffering from recurring loss from operations. We have an accumulated deficit of $14,621,080 and $14,258,667 at June 30, 2013 and December 31, 2012, respectively, and stockholders’ deficits of $468,521 and $652,125 as of June 30, 2013 and December 31, 2012, respectively. We require substantial additional funds to manufacture and commercialize our products. Our management is actively seeking additional sources of equity and/or debt financing; however, there is no assurance that any additional funding will be available.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying June 30, 2013 balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain present financing, and to generate cash from future operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence.

NOTE 13 – SUBSEQUENT EVENTS

On August 2, 2013, we entered into an agreement with an effective date of July 29, 2013 (“Agreement”) with Vencore Solutions, LLC, a Delaware limited liability company (“Vencore”). Master Lease Agreement Number 6906 (the “MLA”) and Lease Schedule Numbers 01 through and including Number 11 (collectively the “Leases”) were executed between October 30, 2006 and August 20, 2007 by us as Lessee and Vencore as Lessor. As of the date of the Agreement, the balance owing to Vencore under the MLA was $307,661.83 (“Debt Obligation”).

The Agreement provides for the following:

(1) Payment Moratorium.  Vencore grants a payment moratorium (the “Payment Moratorium”) to us which expires on December 31, 2013.  The Debt Obligation shall remain $307,661.83 and no further interest or late charges shall accrue until December 31, 2013.

(2) Settlement of Debt Obligation.  Vencore shall consider the Debt Obligation settled in full providing, on or before December 31, 2013, we: (a) Pay the sum of $150,000.00 to Vencore; and (b) Provide Vencore, as holder, 75,000 shares of non-restricted OxySure common stock.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting our results of operations, financial conditions and liquidity position for the three months ended June 30, 2013 and 2012, and should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this report.

Forward-Looking Statements

Statements and information included in this Quarterly Report on Form 10-Q that are not purely historical, including, without limitation, statements that relate to the Company's expectations with regard to the future impact on the Company's results from new products in development, are forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. When used in this report, words such as “believe,” “expect,” “intend,” “goal,” “plan,” “pursue,” “likely,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “evaluate,” “opinion,” “may,” “could,” “future,” “potential,” “probable,” “if,” “will” and similar expressions generally identify forward-looking statements. These statements are subject to risks and uncertainties.

Forward-looking statements in this Quarterly Report on Form 10-Q represent our beliefs, projections and predictions about future events. These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievement described in or implied by such statements. Actual results may differ materially from the expected results described in our forward-looking statements, including with respect to the correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of publicly available information relating to the factors upon which our business strategy is based, or the success of our business. The factors or uncertainties that could cause actual results, performance or achievement to differ materially from forward-looking statements contained in this report can be found in our filings with the Securities and Exchange Commission, including our filings on Form 10-K.

Highlights

Some of our key financial performance statistics for the three months ended June 30, 2013, as compared to the same metric for the three months ended June 30, 2012, include the following:

● Total revenue increased by approximately 657% to $476,071 as compared to $62,891 for the prior period;

● General and administrative expense declined by approximately 18% to $194,803 as compared to $237,445 for the prior period;

● Interest expense declined by approximately 60% to $23,254 as compared to $57,462 for the prior period;

● Net loss declined by approximately 11.8%;

● Working capital deficit improved by approximately $1,926,481;

● Stockholder deficit improved by approximately $2,359,951; and

● Net loss per share remained flat at $.01 per share.

Some of our key non-financial highlights and milestones achieved during the first quarter of 2013 include the following:

● We launched a new product, a double wall cabinet to house a combination AED/OxySure system;

● We added new distributors in the United States to expand our distribution footprint;

● We signed a new international distribution agreement with Medizon B.V. to be the exclusive distributor for our products in the “Benelux” countries – the Netherlands, Belgium and Luxembourg, increasing our distribution to nine countries outside the U.S; and

● Our OxySure Model 615 emergency oxygen device was used in connection with several additional saves during the quarter.

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Overview

OxySure Systems, Inc. was formed on January 15, 2004 as a Delaware “C” Corporation for the purpose of developing products with the capability of generating medical grade oxygen “on demand,” without the necessity of storing oxygen in compressed tanks.  Our technology, process and methodologies involve the creation of medically pure (USP) oxygen from two dry, inert powders.  We believe that other available chemical oxygen generating technologies contain hazards that make them commercially unviable for broad-based emergency use by lay rescuers or the general public.  Our launch product is the OxySure Model 615 portable emergency oxygen system.  We believe that the OxySure Model 615 is currently the only product on the market that can be safely pre-positioned in public and private venues for emergency administration of medical oxygen by lay persons, without the need for training.

To date, we have been issued 9 patents and we have other patents pending on this process and technology that we believe is revolutionizing the emergency/short duration oxygen supply marketplace. We believe that OxySure makes the delivery devices lighter, safer, more affordable and easier to use. We believe our products can improve access to emergency oxygen that affects the survival, recovery and safety of individuals in several areas of need: (1) Public and private places and settings where medical emergencies can occur; (2) Individuals at risk for cardiac, respiratory or general medical distress needing immediate help prior to emergency medical care arrival; and (3) Those requiring immediate protection and escape from exposure situations or oxygen-deficient situations in industrial, mining, military, or other “Immediately Dangerous to Life or Health” (IDLH) environments.

The OxySure Model 615 emergency oxygen device was cleared by the Food and Drug Administration (“FDA”) (510k, Class II) for over-the-counter purchase in December 2005. We believe it bridges the gap between the onset of a medical emergency and the time first responders arrive on the scene. We believe it allows a lay rescuer – a bystander or loved one – to administer medical oxygen during those first, critical minutes after an emergency occurs, improving medical outcomes and saving lives in the process.

We have diversified our product portfolio to provide include solutions focused on the emergency medical preparedness and respiratory needs of our education, commercial and government customers. Our solutions include Automated External Defibrillators (AEDs) and accessories, resuscitation equipment, and respiratory and monitoring equipment and supplies.

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The OxySure Strategy

The following summarizes the principal elements of our strategy:

● We launched the OxySure Model 615 into the K-12 education market in the United States, and we subsequently diversified into other institutional markets, such as colleges, churches, manufacturing facilities and other commercial and municipal buildings. We plan to continue to pursue institutional customers in these and other vertical markets, both in the United States and internationally.

● We believe that Model 615 is a natural complement and companion product to an Automated External Defibrillator (AED). We plan to continue to market Model 615 as a companion product to AEDs, and our goal in the foreseeable future is to pursue the placement of the OxySure Model 615 next to as many AEDs as possible, in the United States as well as internationally. We believe in the long term, however, Model 615 has the potential to become a standard issue item for public and private settings, just like a fire extinguisher.

● We plan to continue to leverage our core competencies in oxygen, breathing technologies, research and manufacturing to pursue revenue opportunities in new vertical markets, including the military.

● We plan to continue to build our sales force by recruiting dedicated sales professionals focusing on former first responders, paramedics and firefighters as well individuals from other medical, first aid and safety sales areas to market our products and craft solutions for our customers.  

● Our channel strategy includes leveraging distribution partnerships to enhance market penetration, and we plan to increase our efforts to partner with distributors, including distributors of AEDs, safety products and medical devices.  We plan to invest resources in training and tools for our distribution partners’ sales, systems and support organizations, in order to improve the overall efficiency and effectiveness of these partnerships.

● We plan to continue our increasing efforts to promote market awareness and education of our products and their critical need, and our efforts may include partnerships with industry, medical thought leaders, and community and advocacy organizations.

● We plan to pursue market catalysts such as a legislative agenda for state and federal mandates, medical reimbursement for at risk markets, and insurance underwriting benefits and discounts for product users.

● We plan to continue to diversify our product offerings through the addition of complimentary or additive products and solutions that enhance our core product usability, feasibility, appeal or application, or that enhances our ability to access or add value to existing and new customers. In addition, we plan to continue our development efforts focused on developing new products incorporating our core “oxygen from powder” technology for other vertical markets, such as aviation, mining, and sports and recreation as applicable.

● We plan to implement technologies and processes that enhance the performance, appeal and functionality of our product family, enhance manufacturing scalability and reduce manufacturing and operating cost. We will seek to leverage new technologies as they become available.

Critical Accounting Policies

The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.

The discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities.  On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of inventory, income taxes and contingencies.  We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations.  We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period.  Actual results could differ from those estimated.

27

Revenue Recognition - We recognize revenue when persuasive evidence of an arrangement exists, shipment has occurred, the price is fixed or determinable, and collectability is reasonably assured.  Revenues are recognized from product sales, net of discounts and rebates.  This revenue recognition policy is applied to both customers and distributors.

Fees from licensees desiring to manufacture and distribute our products or derivative products using our intellectual property include initial license fees and royalties.  Initial license fees are generally recognized upon granting of the license to the licensee.  Royalties are recognized in the period earned.

Deferred Revenue and Income - We defer revenue and income when we invoice a customer or a customer makes a payment and the requirements of revenue recognition have not been met (i.e. persuasive evidence of an arrangement exists, shipment from a company warehouse has occurred, the price is fixed or determinable and collectability is reasonably assured). Deferred Revenue was $261,726 and $499,225 as at June 30, 2013 and December 31, 2012, respectively.

Cash and Cash Equivalents - Cash consists of all highly liquid investments purchased with maturity of three months or less to be cash equivalents. Cash and cash equivalents may at times exceed Federally-insured limits. To minimize this risk, the Company places its cash and cash equivalents with high credit quality institutions.

Inventory – Our inventory consists of raw material and components for our portable oxygen systems as well as completed products and accessories.   Inventories are computed using the lower of cost or market, which approximates actual cost on a first-in first-out basis. Inventory components are parts, work-in-process and finished goods. Finished goods are reported as inventories until the point of title transfer to the customer. We write down our inventory value for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Management has established inventory reserves to cover estimated inventory losses for all work-in-process and finished goods related to products we manufactured, as well as raw material and components for those products that had no potential use in products to be manufactured in the future. Management is required to make judgments about the future benefit of our raw materials and components. Actual reserve requirements could differ significantly from Management’s estimates, which could have a significant unfavorable impact on our future gross margins.

At June 30, 2013 inventories consisted of the following:

	June 30, 2013
Parts inventory	$	173,813
Work in process		97,785
Finished goods	$	16,926
Total inventories	$	288,523

Concentration of Credit Risk – We sell our products throughout the United States as well as in certain other countries.  Sales to its recurring customers in the United States are generally granted on net 30-day credit terms. We perform periodic credit evaluations of our recurring customers and generally do not require collateral. In general, we require prepayment on all sales to customers outside the United States. An allowance for doubtful accounts is maintained for potential credit losses, which losses historically have not been significant.

We invest our cash in deposits and money market funds with major financial institutions.  We place our cash investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument.

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable and accounts payable.  We believe that the recorded values of all of our other financial instruments approximate their fair values because of their nature and respective maturity dates or durations. The fair value of our long-term debt is determined by using estimated market prices. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3:Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

28

The fair value of the majority of our cash equivalents was determined based on “Level 1” inputs. We do not have any marketable securities in the “Level 2” and “Level 3” category. We believe that the recorded values of all our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Property and Equipment – Property and equipment are recorded at cost with depreciation and amortization provided over the shorter of the remaining lease term or the estimated useful life of the improvement ranging from three to seven years. Renewals and betterments that materially extend the life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. Furniture and fixtures are depreciated over five years. Machinery and equipments are depreciated over five to seven years. Software is depreciated over three years.  Leasehold improvements are computed using the shorter of the estimated useful lives of the assets or the lease terms.  Depreciation expense was $4,671 and $40,314 for the three month periods ended June 30, 2013 and 2012, respectively.

Other Long-Lived Assets – We have two types of intangible assets – patents and trademarks.  Intangible assets are carried at cost, net of accumulated amortization.  Amortization expense for patents and trademarks was $7,489 and $7,442 for the three month periods ended June 30, 2013 and 2012, respectively.

Intangible assets with definite useful lives and other long-lived assets are tested for impairment if certain impairment indicators are identified.  Management evaluates the recoverability of its identifiable intangible assets in accordance with applicable accounting guidance, which requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. Certain events and circumstances the Company considered in determining whether the carrying value of identifiable intangible assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in its business strategy.  In determining if impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.  If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Impairment charges for patents were $0 for each of the three month periods ended June 30, 2013 and 2012.

29

Other Assets – We record Other Assets net of accumulated amortization. Amortization expense for Other Assets was $23,237 and $0 for the three month periods ended June 30, 2013 and 2012, respectively.

Capitalization of software: The Company accounts for internal-use software and website development costs, including the development of its partner marketplaces in accordance with ASC 350-50 (Intangibles – Website cost). The Company capitalizes internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use software, as well as any external direct costs. It amortizes these costs over their estimated useful lives, which typically range between three to five years. The Company’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on management’s judgment as to the product life cycle.

Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments.  We periodically review these allowances, including an analysis of the customers’ payment history and information regarding the customers’ creditworthiness.  Actual write-offs have not been materially different from the estimated allowance. We recorded bad debt expense of $0 for each of the three month periods ended June 30, 2013 and 2012.

Research and Development Costs – Costs associated with the development of our products are charged to expense as incurred.  $183,444 and $1,175 were incurred in the three month periods ended June 30, 2013 and 2012, respectively.

Income Taxes - In accordance with Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”), we account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our Consolidated Financial Statements, but have not been reflected in our taxable income.  A valuation allowance has been established to reduce deferred tax assets to their estimated realizable value.  Therefore, we provide a valuation allowance to the extent that we do not believe it is more likely than not that we will generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets.  We recognize interest and penalties related to unrecognized tax benefits in income tax expense.

Equity Warrants - We issued warrants to purchase shares of our common stock in connection with convertible notes. In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the notes were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We record the fair value of the warrants at the time of issuance as additional paid in capital and as a debt discount to the notes.  We amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrants with the convertible notes, a beneficial conversion option is recorded as a debt discount reflecting the incremental conversion option intrinsic value of the conversion option provided to the holders of the notes. We also amortize this debt discount as interest expense over the life of the notes.  The intrinsic value of each conversion option was calculated as the difference between the effective conversion price and the fair value of the common stock, multiplied by the number of shares into which the note is convertible.

Stock-Based Compensation – We account for share-based payments, including grants of stock options to employees, consultants and non-employees; moreover, we issue warrants to the consultants and related parties.  We are required to estimate the fair value of share-based awards and warrants on the date of grant. The value of the award is principally recognized as expense ratably over the requisite service periods. We have estimated the fair value of stock options and warrants as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes model requires the input of certain assumptions.  Changes in the assumptions used in Black-Scholes model can materially affect the fair value estimates. We evaluate the assumptions used to value stock options on an annual basis. The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.

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The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by employees.  Upon the adoption of the accounting guidance, we continued to use historical volatility in deriving its expected volatility assumption as allowed under GAAP because we believe that future volatility over the expected term of the stock options is not likely to differ materially from the past. The risk-free interest rate assumption is based on 5-year U.S Treasury zero-coupon rates appropriate for the expected term of the stock options. The expected dividend assumption is based on the history and expectation of dividend payouts.  The fair values generated by the Black-Scholes model may not be indicative of the actual fair values of the equity awards, as we do not consider other factors important to those awards to employees, such as continued employment, periodic vesting requirements and limited transferability.  The amount of stock based compensation expenses is net of an estimated forfeiture rate, which is also based on historical data. For the three month periods ended June 30, 2013 and 2012, stock based compensation expense was approximately $0 and $7,695, respectively, which consisted primarily of stock-based compensation expense related to stock options issued to the employees and recognized under GAAP.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. For the three month periods ended June 30, 2013 and 2012, stock based compensation expense was approximately $0 and $0, respectively which consisted primarily of stock-based compensation expense related to stock options and warrants recognized under GAAP issued to consultants and other non-employees.

The following table shows the components of the Company’s stock based compensation expense for employees, consultants and other non-employees:

	Three months ended June 30,
	2013		2012
Common Stock options issued for compensation	$	-	$	7,695
Common Stock options and warrants issued for services		-		-
Total	$	-	$	7,695

Shipping and Handling Costs - Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of revenues.

Advertising Costs - Advertising costs are charged to operations when incurred.  We incurred $133,730 and $18,134 in advertising and promotion costs during the three month periods ended June 30, 2013 and 2012, respectively.

Litigation and Settlement Costs - Legal costs are expensed as incurred. The Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) accrue the best estimate within a range of loss if there is a loss or, when there is no amount within a range that forms a better estimate, the Company will accrue the minimum amount in the range. The Company was not involved in any legal proceedings, litigation or other legal actions during the three months ended June 30, 2013.

Restatements and Reclassifications - Certain financial statement items have been reclassified to conform to the current periods’ presentation.  These reclassifications had no impact on previously reported net loss. 

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Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-08, “Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment.”  ASU 2011-08 amends the required annual impairment testing of goodwill by providing an entity an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If, after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test under Topic 350-24 and Topic 350-20-35-9 is unnecessary.  However, if an entity concludes otherwise, then it is required to perform the impairment testing under Topic 350-24 by calculating the fair value of the reporting unit and comparing the results with the carrying amount.  If the fair value exceeds the carrying amount, then the entity must perform the second step test of measuring the amount of the impairment test under Topic 350-20-35-9.

An entity has the option to bypass the qualitative assessment and proceed directly to the two step goodwill impairment test.  Additionally, the entity has the option to resume with the qualitative testing in any subsequent period.  The amendment became effective for the Company on January 1, 2012 and did not have a material effect on our consolidated financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities.”  The guidance in this update requires us to disclose information about offsetting and related arrangements to enable users of our financial statements to understand the effect of those arrangements on our financial position.  The pronouncement is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented.  Our adoption of the new standard is not expected to have a material effect on our consolidated financial position or results of operations.

Results of Operations

You should read the selected financial data set forth below along with our discussion and our financial statements and the related notes. We have derived the financial data from our unaudited financial statements. We believe the financial data shown in the table below include all adjustments consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of such information. Operating results for the period are not necessarily indicative of the results that may be expected in the future.

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	For the three months ended June 30,
	2013			2012
Revenues	$	476,071		$	62,891
Operating expenses		511,980			256,754
Net income (loss)		(192,609	)		(218,472	)
Net income (loss) per share	$	(0.008	)	$	(0.01	)

Results for the Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012 (unaudited)

Revenues

We had $476,071 in revenues from operations for the three months ended June 30, 2013 as compared to revenues of $62,891 for the three months ended June 30, 2012.  The increase in revenues is primarily attributable to an increase in US product sales, an increase in licensing/service revenues and an increase in products developed for the military as part of a teaming agreement.

Operating Expenses

Total expenses for the three months ended June 30, 2013 were $687,706, which amount includes $511,980 of operating expenses, $152,472 in cost of goods sold, and $23,254 in interest expense, as compared to total expenses for the three months ended June 30, 2012 of $339,372, which amount includes $256,754 of operating expenses, $25,156 in cost of goods sold, and $57,462 in interest expense. The increase in total selling, general and administrative expenses is primarily attributable to an increase in advertising and promotional expense and an increase in research and development expense, offset by a decrease in other general and administrative expense. The decrease in interest expense is primarily attributable to a decrease in interest expense related to convertible notes.

Research and Development

Research and development expenses of $183,447 and $1,175 were incurred in the three months periods ended June 30, 2013 and 2012, respectively.  The increase in research and development expense is primarily attributable to an increase in research and development expense recognized in connection with products for military markets.

Net Loss

Net loss for the three months ended June 30, 2013 was $192,609 and diluted net loss per share was $0.01 as compared to a net loss for the three months ended June 30, 2012 of $218,472 and diluted net loss per share of $0.01.  The decrease in net loss per share is primarily due to the combined effect of an increase in revenues and a decrease in interest expense, offset by an increase in selling, general and administrative expenses.

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Liquidity and Capital Resources

We had a cash balance of approximately $96,207 as of June 30, 2013, as compared to $13,514 as of December 31, 2012.  Our funds are kept in financial institutions located in the United States of America.

We had negative working capital of approximately $1,291,023 as of June 30, 2013 as compared to a negative working capital of $1,536,239 as of December 31, 2012.

We had total notes payable of $538,340 and $474,661 as of June 30, 2013 and December 31, 2012, respectively.  The increase in Notes Payable was primarily due to the issuance of a new note in the amount of $25,000 and a decrease in debt discount associated with convertible notes.

We generally provide our customers with terms of up to 30 days on our accounts receivable.  In some cases we require prepayment, depending on history or credit review.  Further, we generally require pre-payment on orders shipped to international destinations.  Our accounts receivable, net of allowances for sales returns and allowance for doubtful accounts, were $80,917 and $18,487 as at June 30, 2013 and December 31, 2012, respectively.

Since inception, we have been engaged primarily in product research and development, obtaining certain regulatory approvals, investigating markets for our products, developing manufacturing and supply chain partners, developing our production capability, and developing distribution, licensing and other channel relationships.  In the course of funding research and development activities, we have sustained operating losses since inception and have an accumulated deficit of $14,621,080 at June 30, 2013.

We completed product development of our launch product, the OxySure Model 615 and launched sales thereof in 2008.  We have and will continue to use significant capital to manufacture and commercialize our products.  These factors raise doubt about our ability to continue as a going concern.  In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of our common stock.

During the remainder of 2013 and 2014, we will need additional capital to market and sell our products, and to further develop and enhance our current product offerings, introduce new products and address unanticipated competitive threats, technical problems, economic conditions or other requirements.  During the three months ended June 30, 2013 we issued approximately 508,350 shares of common stock valued at approximately $260,275 pursuant to common stock subscribed but not issued in a prior period, and $253,206 in cash for common stock subscribed. We estimate that we will require approximately $2.64 million over the next 12 months to remain viable.  There is no assurance that we will be successful in raising this additional capital or in achieving profitable operations.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.  However, there can be no assurance that any additional financing will be available to us.  Additional equity financing may involve substantial dilution to our then existing stockholders.  In the event we are unable to raise additional capital, we may be required to substantially reduce or curtail our activities.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our President and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of period covered by this report.  Based upon such evaluation,  the President and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to litigation in the normal course of business. As of June 30, 2013 the Company was not a party to any ongoing litigation matters.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended June 30, 2013 we issued approximately 508,350 shares of common stock valued at approximately $260,275 pursuant to common stock subscribed but not issued in a prior period.

Proceeds from the sale of common stock were used for working capital and for general corporate purposes. All of the securities described above were issued in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following Exhibits are filed herein:                      

No. Title

31.1 Certification of President Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATED: August 13, 2013	OXYSURE SYSTEMS, INC.
	/s/ Julian T. Ross
	BY: Julian T. Ross
	ITS: President and Chief Financial Officer
	(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

37

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRESIDENT

PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,

RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Julian T. Ross, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2013 of OxySure Systems, Inc.

2.   Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3.   Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure control and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2013

/s/ Julian T. Ross

Julian T. Ross,

President

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,

RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Julian T. Ross, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2013 of OxySure Systems, Inc.

2.   Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3.   Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure control and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2013

/s/ Julian T. Ross

Julian T. Ross,

Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of OxySure Systems, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Julian T. Ross, President and Chief Financial Officer of the Company, respectively, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: August 13, 2013

/s/ Julian T. Ross

Julian T. Ross,

President and Chief Financial Officer

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Going Concern

6 Months Ended

Jun. 30, 2013

Going Concern [Abstract]

GOING CONCERN

NOTE 12 – GOING CONCERN

Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  We have been suffering from recurring loss from operations. We have an accumulated deficit of $14,621,080 and $14,258,667 at June 30, 2013 and December 31, 2012, respectively, and stockholders’ deficits of $468,521 and $652,125 as of June 30, 2013 and December 31, 2012, respectively. We require substantial additional funds to manufacture and commercialize our products. Our management is actively seeking additional sources of equity and/or debt financing; however, there is no assurance that any additional funding will be available.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying June 30, 2013 balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain present financing, and to generate cash from future operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence.

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Going Concern (Details) (USD $)	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Going Concern (Textual)
Accumulated deficit	$ (14,621,080)	$ (14,428,471)	$ (14,258,667)	$ (13,974,618)	$ (13,756,109)	$ (13,430,659)
Stockholders' deficits	$ (468,521)	$ (580,642)	$ (652,125)

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Condensed Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Statements of Operations and Accumulated Deficit [Abstract]
Revenues, net	$ 476,071	$ 62,891	$ 716,491	$ 90,775
Cost of goods sold	152,472	25,156	205,653	37,859
Gross profit	323,599	37,735	510,838	52,916
Operating expenses
Research and development	183,447	1,175	220,158	1,235
Sales and marketing	133,730	18,134	192,077	20,564
Other general and administrative	194,803	237,445	431,097	518,477
Loss from operating expenses	(188,381)	(219,019)	(332,494)	(487,360)
Other income (expenses)
Other income (expense)	19,026	58,009	19,026	58,718
Interest expense	(23,254)	(57,462)	(48,489)	(115,316)
Total other income (expenses)	(4,228)	547	(29,464)	(56,599)
Net loss	$ (192,609)	$ (218,472)	$ (361,958)	$ (543,958)
Basic and diluted net income (loss) per common share	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.03)
Weighted average common shares outstanding Basic and diluted	23,167,439	19,807,432	22,917,864	18,825,947

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Shareholders' Equity

6 Months Ended

Jun. 30, 2013

Shareholders' Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 5 - SHAREHOLDERS’ EQUITY

Preferred Shares Rights

On December 31, 2005, the Company’s Board of Directors adopted a Preferred Shares Rights Agreement (the “Original Rights Agreement”).   Pursuant to the Agreement, the Board authorized the issuance of up to 5,000,000 shares of preferred stock, par value $0.0005 per share. As of December 31, 2005, the Company had authorized the issuance of 2,000,000 shares of preferred stock designated as Series A Convertible Preferred Stock (“Series A Preferred”). On March 22, 2006 the Company authorized an increase in the issuance of the Series A Preferred to 3,100,000 shares of preferred stock. On July 2, 2008 the Company further authorized an increase in the issuance of the Series A Preferred to 3,143,237 shares of preferred stock. The original issue price of the Series A Preferred is $1.00 per share. There were 768,750 and 818,750 Series A Preferred shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively.

During the three months ended June 30, 2013 the Company did not issue any shares of the Series A Preferred. During the three months ended June 30, 2013 no shares of the Series A Preferred have been converted into our common stock.

A summary of the designations and preferences of its Series A Preferred stock is as follows:

Ranking – The Series A Preferred ranks senior to common stock.

Dividends – Series A Preferred may be entitled to receive a quarterly non-cumulative dividend in the amount of $.01 per share upon approval from the Board of Directors.

Liquidation Preference – In the event of any liquidation, dissolution, or winding up of the Company, the holders of Series A Preferred are entitled to receive 100% of the original issue price of $1.00 per share.

Conversion Rights – Each share of Series A Preferred is convertible at any time, at the option of the holder into 1.22 shares of common stock, subject to adjustment. Series A Preferred are subject to automatic conversion upon consummation of underwritten offering by the Company of shares of common stock to the public, in which the aggregate cash proceeds are at least $3 million and the price paid per share is at least $5.00.

Redemption Rights – All of the Series A Preferred may be called at any time by the Company within ten years, but not prior to two years after issuance. The redemption value is $1.00 per share, plus an amount equal to all unpaid dividends thereon.

Voting Rights – The holder of each share of Series A Preferred has the right to one vote for each share of common stock into which such share of Series A Preferred could be converted.

Common Stock

The Company has authorized 100,000,000 shares of $0.0004 par value common stock.

During the three months ended June 30, 2013:

● We issued approximately 508,350 shares of common stock valued at approximately $260,275 pursuant to common stock subscribed but not issued in a prior period.

● We issued approximately 7,500 shares of common stock in connection with research & development arrangements valued at $5,547.

● We issued approximately 2,500 shares of common stock for employee compensation valued at $1,525.

As of June 30, 2013 we had approximately $253,206 in Other stockholder equity recorded pursuant to approximately 483,529 shares of common stock subscribed for but not issued, in accordance with ASC Topic 210-10.

As of June 30, 2013 we had approximately 23,685,846 shares of common stock issued and outstanding.

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Stock Options and Warrants (Tables)

6 Months Ended

Jun. 30, 2013

Stock Options and Warrants [Abstract]

Summary of option activity

	Employee				Non-Employee
			Weighted				Weighted
	Number		Average		Number		Average		Combined
	Of		Exercise		Of		Exercise		Total
	Options		Price		Options		Price		Options
Outstanding at March 31, 2013		1,426,741	$	0.37		18,180	$	1.15		1,444,921
Granted		135,000	$	0.25		-	$	-		135,000
Exercised		-	$	-		-	$	-		-
Forfeited/Cancelled		-	$	-		-	$	-		-
Outstanding at June 30, 2013		1,561,741	$	0.36		18,180	$	1.15		1,579,921

Summary of assumptions to estimate the fair value of options granted

	Equity Incentive Plans for Quarter Ended June 30,
	2013			2012
Expected terms (in years)		5-10			5-10
Volatility (weighted ave.)		65	%		26	%
Risk-free interest rate (weighted ave.)		1.41	%		1.04	%
Expected dividend rate		0	%		0	%

Summary of warrant activity

			Weighted Average
	Number Of		Exercise
	Warrants		Price
Outstanding at March 31, 2013		1,519,534	$	0.80
Granted		-	$	-
Exercised		-	$	-
Forfeited/Cancelled		-	$	-
Outstanding at June 30, 2013		1,519,534	$	0.80

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Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 13 – SUBSEQUENT EVENTS

On August 2, 2013, we entered into an agreement with an effective date of July 29, 2013 (“Agreement”) with Vencore Solutions, LLC, a Delaware limited liability company (“Vencore”). Master Lease Agreement Number 6906 (the “MLA”) and Lease Schedule Numbers 01 through and including Number 11 (collectively the “Leases”) were executed between October 30, 2006 and August 20, 2007 by us as Lessee and Vencore as Lessor. As of the date of the Agreement, the balance owing to Vencore under the MLA was $307,661.83 (“Debt Obligation”).

The Agreement provides for the following:

(1) Payment Moratorium.  Vencore grants a payment moratorium (the “Payment Moratorium”) to us which expires on December 31, 2013.  The Debt Obligation shall remain $307,661.83 and no further interest or late charges shall accrue until December 31, 2013.

(2) Settlement of Debt Obligation.  Vencore shall consider the Debt Obligation settled in full providing, on or before December 31, 2013, we: (a) Pay the sum of $150,000.00 to Vencore; and (b) Provide Vencore, as holder, 75,000 shares of non-restricted OxySure common stock.

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Related Party Transactions (Details) (USD $)	6 Months Ended
	Jun. 30, 2013
Julian Ross [Member]
Summary of related party financings and notes
Amount	$ 153,983
Stated interest rate	0.00%
Maturity	n/a
Other [Member]
Summary of related party financings and notes
Amount	$ 0
Stated interest rate	0.00%
Maturity	n/a

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Notes Payable (Details 1) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Carrying values of short-term and long-term notes payable
Total short-term notes payable, Principal	$ 489,815
Total short-term notes payable, Discount	27,547
Total short-term notes payable	462,268	398,589
Total long-term notes payable, Principal	104,000
Total long-term notes payable, Discount	27,928
Total long-term notes payable	76,072	76,072
Total short-term and long-term notes payable, Principal	593,815
Total short-term and long-term notes payable, Discount	55,475
Total short-term and long-term notes payable	538,340
Sinacola, Third Landlord Note [Member]
Carrying values of short-term and long-term notes payable
Effective Interest Rate	0.00%
Total short-term notes payable, Principal	110,000
Total short-term notes payable, Discount
Total short-term notes payable	110,000
Sinacola, Fourth Landlord Note [Member]
Carrying values of short-term and long-term notes payable
Effective Interest Rate	0.00%
Total short-term notes payable, Principal	110,715
Total short-term notes payable, Discount
Total short-term notes payable	110,715
Sinacola, Fifth Landlord Note [Member]
Carrying values of short-term and long-term notes payable
Effective Interest Rate	0.00%
Total short-term notes payable, Principal	50,000
Total short-term notes payable, Discount
Total short-term notes payable	50,000
Sinacola, Sixth Landlord Note [Member]
Carrying values of short-term and long-term notes payable
Effective Interest Rate	0.00%
Total short-term notes payable, Principal	50,000
Total short-term notes payable, Discount
Total short-term notes payable	50,000
Sinacola, Seventh Landlord Note [Member]
Carrying values of short-term and long-term notes payable
Effective Interest Rate	41.64%
Total short-term notes payable, Principal	50,050
Total short-term notes payable, Discount	10,920
Total short-term notes payable	39,130
Sinacola, Eighth Landlord Note [Member]
Carrying values of short-term and long-term notes payable
Effective Interest Rate	43.64%
Total short-term notes payable, Principal	50,050
Total short-term notes payable, Discount	10,421
Total short-term notes payable	39,629
Beaufort Ventures PLC [Member]
Carrying values of short-term and long-term notes payable
Effective Interest Rate	12.00%
Total short-term notes payable, Principal	25,000
Total short-term notes payable, Discount
Total short-term notes payable	25,000
Frisco EDC [Member]
Carrying values of short-term and long-term notes payable
Effective Interest Rate	12.34%
Total short-term notes payable, Principal	44,000
Total short-term notes payable, Discount	6,206
Total short-term notes payable	37,794
Total long-term notes payable, Principal	104,000
Total long-term notes payable, Discount	27,928
Total long-term notes payable	$ 76,072

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Summary of Financial assets and liabilities measured at fair value on a recurring basis

	Total		Level 1		Level 2		Level 3
Cash (1)	$	96,207	$	96,207		-		-
Total cash equivalents as of June 30, 2013	$	96,207	$	96,207	$	-	$	-

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Related Party Transactions (Tables)

6 Months Ended

Jun. 30, 2013

Related Party Transactions [Abstract]

Summary of the related party financings and notes payable

	Shareholder advances
Related party	Julian Ross (1)			Other
Amount	$	153,983		$	0
Stated interest rate		0	%		0	%
Maturity		n/a			n/a

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Commitments and Contingency (Details) (USD $)	Jun. 30, 2013
Summary of minimum non-cancellable lease payments required under capital leases
2013	$ 308,526
2014	1,725
2015	576
Total	310,829
Less amounts representing interest	(510)
Total	$ 310,319

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Balance Sheet Components (Details) (USD $)	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
Cash and cash equivalents:
Cash	$ 96,207	$ 13,514
Cash and cash equivalents	96,207	13,514	22,152	65,118
Inventories:
Total inventories	288,523	221,345
Accounts Receivable, net of allowances	80,917	18,487
Property and equipment, net:
Machinery and equipment	919,736	919,736
Leasehold improvements	547,856	547,856
Computer equipment and furniture and fixtures	242,268	236,797
Software	10,691	10,691
Property and equipment, gross	1,720,551	1,715,080
Accumulated depreciation and amortization	(1,697,034)	(1,687,481)
Total property and equipment, net	23,516	27,599
Other Assets:
Deferred loan costs, net	199,778	224,751
Security deposits	53,274	53,274
Website development, software, URLs, net	216,847	238,348
Total other assets	469,899	516,373
Accounts payable and accrued expenses:
Leasehold Improvement Allowance
Accounts payable	206,915	70,141
Accrued interest
Accrued expenses for website and software	143,286	143,286
Stockholder advances	153,983	207,472
Other accrued liabilities	219,966	174,756
Total accounts payable and accrued expenses	$ 724,150	$ 595,655

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Notes Payable (Details Textual) (USD $)			0 Months Ended	12 Months Ended						0 Months Ended	3 Months Ended		0 Months Ended	3 Months Ended		0 Months Ended	3 Months Ended		0 Months Ended	3 Months Ended		0 Months Ended	3 Months Ended		0 Months Ended	3 Months Ended		0 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Mar. 22, 2011 Frisco Promissory Note [Member]	Dec. 31, 2008 Frisco Promissory Note [Member]	Jun. 30, 2013 Frisco Promissory Note [Member]	Dec. 01, 2012 Frisco Promissory Note [Member]	Dec. 01, 2011 Frisco Promissory Note [Member]	Dec. 31, 2010 Frisco Promissory Note [Member]	Apr. 03, 2007 Frisco Promissory Note [Member]	Dec. 31, 2010 Third Landlord Note [Member]	Jun. 30, 2013 Third Landlord Note [Member]	Jun. 30, 2012 Third Landlord Note [Member]	Dec. 31, 2010 Fourth Landlord Note [Member]	Jun. 30, 2013 Fourth Landlord Note [Member]	Jun. 30, 2012 Fourth Landlord Note [Member]	Mar. 23, 2011 Fifth Landlord Note [Member]	Jun. 30, 2013 Fifth Landlord Note [Member]	Jun. 30, 2012 Fifth Landlord Note [Member]	Mar. 23, 2011 Sixth Landlord Note [Member]	Jun. 30, 2013 Sixth Landlord Note [Member]	Jun. 30, 2012 Sixth Landlord Note [Member]	Aug. 15, 2011 Seventh Landlord Note [Member]	Jun. 30, 2013 Seventh Landlord Note [Member]	Jun. 30, 2012 Seventh Landlord Note [Member]	Aug. 15, 2011 Eighth Landlord Note [Member]	Jun. 30, 2013 Eighth Landlord Note [Member]	Jun. 30, 2012 Eighth Landlord Note [Member]	Aug. 15, 2011 Sinacola Subordinated, Convertible Notes [Member]	Mar. 23, 2011 Sinacola Subordinated, Convertible Notes [Member]	Dec. 31, 2010 Sinacola Subordinated, Convertible Notes [Member]
Notes Payable (Textual)
Debt instrument, face amount									$ 243,000
Stated interest									12.18%
Unamortized discount related to notes payable	27,928	27,928						66,198
Loan forgiven amount recognized as other nonoperating income				30,000
Amount of outstanding forgivable loan			213,000
Debt instrument, payment terms			(i) the full payment of the economic incentives; or (ii) March 31, 2016.
Period of performance for debt			5 years
Face value of renewed note			213,000
Renewed debt instrument interest rate			12.34%
Proceed from performance credit of the FEDC						39,000	26,000
Unamortized discount	55,475				34,134
Debt instrument outstanding amount					113,866
Warrants issued																												65,065	65,000	143,465
Debt instrument, maturity date										Oct. 31, 2012			Oct. 31, 2012			Sep. 30, 2013			Sep. 30, 2013			Nov. 30, 2013			Nov. 30, 2013					Dec. 31, 2015
Conversion price of note(s) (aggregate)										$ 1.00			$ 1.50			$ 1.00			$ 1.50			$ 1.00			$ 1.50
Fair value of warrant issued										70,853			71,314			32,207			32,207			32,223			32,223
Amount of beneficial conversion feature recorded as debt discount										39,147			34,409			17,793			15,540			17,827			15,540
Interest expenses											0	0		0	0		0	0		0	0		5,460	5,460		5,210	5,210
Principal amount of convertible note										$ 110,000			$ 110,715			$ 50,000			$ 50,000			$ 50,050			$ 50,050
Warrants, aggregate exercise price																													$ 0.01	$ 0.01
Condition for conversion of convertible notes													Common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Fourth Landlord Note is convertible at the Company's option.						Common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Sixth Landlord Note is convertible at the Company's option.						Common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Sixth Landlord Note is convertible at the Company's option.
Warrant exercisable date, description																													On or before March 23, 2016
Shares issuable on conversion of warrants																												65,065	65,000	143,465

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Related Party Transactions (Details Textual) (USD $)	3 Months Ended
	Jun. 30, 2013
Related Party Transactions (Textual)
Interest expenses paid to Timothy Hutton	$ 106,000

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Summary of Significant Accounting Policies (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Numerator
Net income (loss)	$ (192,609)	$ (218,472)	$ (361,958)	$ (543,958)
Less: Effect of amortization of interest expense on convertible notes
Net loss attributed to common stockholders (diluted)	$ (192,609)	$ (218,472)
Denominator
Weighted-average common shares outstanding	23,167,439	19,807,432
Effect of dilutive securities
Denominator for diluted net loss per share	23,167,439	19,807,432
Basic and diluted net income (loss) per common share	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.03)

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Stock Options and Warrants (Details 1)	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Summary of fair value of options granted were estimated at the date of grant using the Black-Scholes model
Volatility (weighted ave.)	65.00%	26.00%
Risk-free interest rate (weighted ave.)	1.41%	1.04%
Expected dividend rate	0.00%	0.00%
Minimum [Member]
Summary of fair value of options granted were estimated at the date of grant using the Black-Scholes model
Expected terms (in years)	5 years	5 years
Maximum [Member]
Summary of fair value of options granted were estimated at the date of grant using the Black-Scholes model
Expected terms (in years)	10 years	10 years

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Commitments and Contingency (Tables)

6 Months Ended

Jun. 30, 2013

Commitments and Contingency [Abstract]

Summary of minimum non-cancellable lease payments required under capital leases

2013	308,526
2014	1,728
2015	576
Total	310,829
Less amounts representing interest	(510	)
Total	310,319

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies of OxySure® Systems, Inc. (“OxySure” or the “Company”) is presented to assist in understanding the Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity.

OxySure Systems, Inc. (OXYS: OTCQB) (the “Company,” “OxySure,” “we,” “us,” or “our”) was incorporated on January 15, 2004 as a Delaware corporation. The Company is located in Frisco, Texas and is a medical technology company that focuses on the design, manufacture and distribution of specialty respiratory and emergency medical solutions. The company pioneered a safe and easy to use solution to produce medically pure (USP) oxygen from inert powders. The company owns nine (9) issued patents and patents pending on this technology which makes the provision of emergency oxygen safer, more accessible and easier to use than traditional oxygen provision systems. OxySure's products improve access to emergency oxygen that affects the survival, recovery and safety of individuals in several areas of need: (1) Public and private places and settings where medical emergencies can occur; (2) Individuals at risk for cardiac, respiratory or general medical distress needing immediate help prior to emergency medical care arrival; and (3) Those requiring immediate protection and escape from exposure situations or oxygen-deficient situations in industrial, mining, military, or other "Immediately Dangerous to Life or Health" (IDLH) environments.

In 2008 the Company launched its first product utilizing this technology – a portable emergency oxygen system for lay person use, called the OxySure Model 615. On December 9, 2005, the Company received approval from the Food and Drug Administration (510K, Class II) for Model 615. The FDA approval is for over-the-counter purchase, without the need of a prescription.

The Company has, at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors.

On July 19, 2004, the Company affected a 1-for-5 reverse stock split of the Company’s common stock. All share numbers and common stock numbers, including stock options and warrants, have been retroactively adjusted to reflect the reverse stock split.

While the Company has effectively managed its working capital deficit the going concern risk remains an issue for the company to manage.  The Company has implemented, and plans to further implement several different strategies in order to help the Company ease the going concern issue.  Refer to Note 15, “Going concern” of the Notes to Financial Statements for a partial list of the Company’s plans to mitigate the going concern issue.

Basis of Presentation - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded; and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition of the Company.  The interim financial statements include all adjustments which, in the opinion of management, are necessary in order to make the financial statements not misleading.

The accompanying Condensed Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The Company's Condensed Financial Statements reflect all adjustments that management believes are necessary for the fair presentation of their financial position, results of operations, comprehensive loss and cash flows for the periods presented. The information at December 31, 2012 in the Company's Condensed Balance Sheet included in this quarterly report was derived from the audited Balance Sheet included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on April 2, 2013. Where applicable, the Company's 2012 Annual Report on Form 10-K is referred to in this quarterly report as the “2012 Annual Report.” This quarterly report should be read in conjunction with the 2012 Annual Report.

Intercompany balances and transactions, if applicable have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts for consistency with the current period presentation.

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period.  Actual results could differ from those estimated.

Revenue Recognition - We recognize revenue when persuasive evidence of an arrangement exists, shipment has occurred, the price is fixed or determinable, and collectability is reasonably assured.  Revenues are recognized from product sales, net of discounts and rebates.  This revenue recognition policy is applied to both customers and distributors.

Fees from licensees desiring to manufacture and distribute our products or derivative products using our intellectual property include initial license fees and royalties.  Initial license fees are generally recognized upon granting of the license to the licensee.  Royalties are recognized in the period earned.

Deferred Revenue and Income - We defer revenue and income when we invoice a customer or a customer makes a payment and the requirements of revenue recognition have not been met (i.e. persuasive evidence of an arrangement exists, shipment from a company warehouse has occurred, the price is fixed or determinable and collectability is reasonably assured). Deferred Revenue was $261,726 and $499,225 as at June 30, 2013 and December 31, 2012, respectively.

Cash and Cash Equivalents - Cash consists of all highly liquid investments purchased with maturity of three months or less to be cash equivalents. Cash and cash equivalents may at times exceed Federally-insured limits. To minimize this risk, the Company places its cash and cash equivalents with high credit quality institutions.

Inventory – Our inventory consists of raw material and components for our portable oxygen systems as well as completed products and accessories.   Inventories are computed using the lower of cost or market, which approximates actual cost on a first-in first-out basis. Inventory components are parts, work-in-process and finished goods. Finished goods are reported as inventories until the point of title transfer to the customer. We write down our inventory value for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Management has established inventory reserves to cover estimated inventory losses for all work-in-process and finished goods related to products we manufactured, as well as raw material and components for those products that had no potential use in products to be manufactured in the future. Management is required to make judgments about the future benefit of our raw materials and components. Actual reserve requirements could differ significantly from Management’s estimates, which could have a significant unfavorable impact on our future gross margins.

At June 30, 2013 inventories consisted of the following:

	June 30, 2013
Parts inventory	$	173,813
Work in process		97,785
Finished goods	$	16,926
Total inventories	$	288,523

Concentration of Credit Risk – We sell our products throughout the United States as well as in certain other countries.  Sales to its recurring customers in the United States are generally granted on net 30-day credit terms. We perform periodic credit evaluations of our recurring customers and generally do not require collateral. In general, we require prepayment on all sales to customers outside the United States. An allowance for doubtful accounts is maintained for potential credit losses, which losses historically have not been significant.

We invest our cash in deposits and money market funds with major financial institutions.  We place our cash investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument.

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable and accounts payable.  We believe that the recorded values of all of our other financial instruments approximate their fair values because of their nature and respective maturity dates or durations. The fair value of our long-term debt is determined by using estimated market prices. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1:  Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2:  Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3: Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The fair value of the majority of our cash equivalents was determined based on “Level 1” inputs. We do not have any marketable securities in the “Level 2” and “Level 3” category. We believe that the recorded values of all our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Property and Equipment – Property and equipment are recorded at cost with depreciation and amortization provided over the shorter of the remaining lease term or the estimated useful life of the improvement ranging from three to seven years. Renewals and betterments that materially extend the life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. Furniture and fixtures are depreciated over five years. Machinery and equipments are depreciated over five to seven years. Software is depreciated over three years.  Leasehold improvements are computed using the shorter of the estimated useful lives of the assets or the lease terms.  Depreciation expense was $4,671 and $40,314 for the three month periods ended June 30, 2013 and 2012, respectively.

Other Long-Lived Assets – We have two types of intangible assets – patents and trademarks.  Intangible assets are carried at cost, net of accumulated amortization.  Amortization expense for patents and trademarks was $7,489 and $7,442 for the three month periods ended June 30, 2013 and 2012, respectively.

Intangible assets with definite useful lives and other long-lived assets are tested for impairment if certain impairment indicators are identified.  Management evaluates the recoverability of its identifiable intangible assets in accordance with applicable accounting guidance, which requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. Certain events and circumstances the Company considered in determining whether the carrying value of identifiable intangible assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in its business strategy.  In determining if impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.  If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Impairment charges for patents were $0 for each of the three month periods ended June 30, 2013 and 2012.

Other Assets – We record Other Assets net of accumulated amortization. Amortization expense for Other Assets was $23,237 and $0 for the three month periods ended June 30, 2013 and 2012, respectively.

Capitalization of software: The Company accounts for internal-use software and website development costs, including the development of its partner marketplaces in accordance with ASC 350-50 (Intangibles – Website cost). The Company capitalizes internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use software, as well as any external direct costs. It amortizes these costs over their estimated useful lives, which typically range between three to five years. The Company’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on management’s judgment as to the product life cycle.

Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments.  We periodically review these allowances, including an analysis of the customers’ payment history and information regarding the customers’ creditworthiness.  Actual write-offs have not been materially different from the estimated allowance. We recorded bad debt expense of $0 for each of the three month periods ended June 30, 2013 and 2012.

Research and Development Costs – Costs associated with the development of our products are charged to expense as incurred.  $183,444 and $1,175 were incurred in the three month periods ended June 30, 2013 and 2012, respectively.

Income Taxes - In accordance with Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”), we account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our Consolidated Financial Statements, but have not been reflected in our taxable income.  A valuation allowance has been established to reduce deferred tax assets to their estimated realizable value.  Therefore, we provide a valuation allowance to the extent that we do not believe it is more likely than not that we will generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets.  We recognize interest and penalties related to unrecognized tax benefits in income tax expense.

Equity Warrants - We issued warrants to purchase shares of our common stock in connection with convertible notes. In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the notes were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We record the fair value of the warrants at the time of issuance as additional paid in capital and as a debt discount to the notes.  We amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrants with the convertible notes, a beneficial conversion option is recorded as a debt discount reflecting the incremental conversion option intrinsic value of the conversion option provided to the holders of the notes. We also amortize this debt discount as interest expense over the life of the notes.  The intrinsic value of each conversion option was calculated as the difference between the effective conversion price and the fair value of the common stock, multiplied by the number of shares into which the note is convertible.

Stock-Based Compensation – We account for share-based payments, including grants of stock options to employees, consultants and non-employees; moreover, we issue warrants to the consultants and related parties.  We are required to estimate the fair value of share-based awards and warrants on the date of grant. The value of the award is principally recognized as expense ratably over the requisite service periods. We have estimated the fair value of stock options and warrants as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes model requires the input of certain assumptions.  Changes in the assumptions used in Black-Scholes model can materially affect the fair value estimates. We evaluate the assumptions used to value stock options on an annual basis. The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.

The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by employees.  Upon the adoption of the accounting guidance, we continued to use historical volatility in deriving its expected volatility assumption as allowed under GAAP because we believe that future volatility over the expected term of the stock options is not likely to differ materially from the past. The risk-free interest rate assumption is based on 5-year U.S Treasury zero-coupon rates appropriate for the expected term of the stock options. The expected dividend assumption is based on the history and expectation of dividend payouts.  The fair values generated by the Black-Scholes model may not be indicative of the actual fair values of the equity awards, as we do not consider other factors important to those awards to employees, such as continued employment, periodic vesting requirements and limited transferability.  The amount of stock based compensation expenses is net of an estimated forfeiture rate, which is also based on historical data. For the three month periods ended June 30, 2013 and 2012, stock based compensation expense was approximately $0 and $7,695, respectively, which consisted primarily of stock-based compensation expense related to stock options issued to the employees and recognized under GAAP.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. For the three month periods ended June 30, 2013 and 2012, stock based compensation expense was approximately $0 and $0, respectively which consisted primarily of stock-based compensation expense related to stock options and warrants recognized under GAAP issued to consultants and other non-employees.

The following table shows the components of the Company’s stock based compensation expense for employees, consultants and other non-employees:

	Three months ended June 30,
	2013		2012
Common Stock options issued for compensation	$	-	$	7,695
Common Stock options and warrants issued for services		-		-
Total	$	-	$	7,695

Shipping and Handling Costs - Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of revenues.

Advertising Costs - Advertising costs are charged to operations when incurred.  We incurred $133,730 and $18,134 in advertising and promotion costs during the three month periods ended June 30, 2013 and 2012, respectively.

Litigation and Settlement Costs - Legal costs are expensed as incurred. The Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) accrue the best estimate within a range of loss if there is a loss or, when there is no amount within a range that forms a better estimate, the Company will accrue the minimum amount in the range. The Company was not involved in any legal proceedings, litigation or other legal actions during the three months ended June 30, 2013.

Loss Per Share - Basic loss per share, which excludes anti-dilutive securities, is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding for that particular period. In contrast, diluted loss per share considers the potential dilution that could occur from other equity instruments that would increase the total number of outstanding shares of common stock. Such amounts include shares potentially issuable under outstanding options, warrants, convertible preferred stock and convertible notes.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows:

	Three months ended June 30,
	2013			2012
Historical net loss per share:
Numerator
Net loss, as reported		(192,609	)		(218,472	)
Less: Effect of amortization of interest expense on convertible notes		-			-
Net loss attributed to common stockholders (diluted)		(192,609	)		(218,472	)
Denominator
Weighted-average common shares outstanding		23,167,439			19,807,432
Effect of dilutive securities		-			-
Denominator for diluted net loss per share		23,167,439			19,807,432
Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)

The following outstanding options, warrants, convertible preferred shares and convertible note shares were excluded from the computation of basic and diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.

	Three months ended June 30,
	2013		2012
Options to purchase common stock		1,579,921		1,554,530
Warrants to purchase common stock		1,519,534		1,872,034
Common shares issuable upon conversion of convertible preferred stock		937,875		1,364,875
Convertible note shares outstanding		411,985		1,696,331

Restatements and Reclassifications - Certain financial statement items have been reclassified to conform to the current periods’ presentation.  These reclassifications had no impact on previously reported net loss. 

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance and disclosure requirements for reporting amounts reclassified out of accumulated other comprehensive income. The guidance requires that an entity provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP. The guidance became effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. This standard was adopted in the first quarter of 2013.

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Intangible Assets

6 Months Ended

Jun. 30, 2013

Intangible Assets [Abstract]

INTANGIBLE ASSETS

NOTE 3 – INTANGIBLE ASSETS

We have two types of intangible assets: patents and trademarks. We capitalize expenditures associated with patents and trademarks related to our various technologies. Capitalized costs include amounts paid to third parties for legal fees, application fees and other direct costs incurred in the filing and prosecution of patent and trademark applications. These assets are amortized on a straight-line method over their legal life.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable in accordance with applicable accounting guidance. Impairment charges for patents were $0 for each of the three month periods ended June 30, 2013 and 2012.

On January 15, 2004, the Company executed an Asset Purchase and Stock Transfer Agreement with entities controlled by the founder of the Company. In connection with this agreement, the Company acquired certain assets, including certain rights, title and interest to intellectual property, relating to the oxygen method and apparatus, developed by the founder of the Company prior to January 15, 2004. As consideration for the purchase, the Company issued 14,000,000 shares of common stock and a promissory note for $150,000 to these entities. The common stock was valued at $7,000 using the par value of the common stock on the date of issuance, which approximates these entities’ basis (which is not indicative of fair value). The non-recourse promissory note bore interest at 6.5% per annum and was paid in full during 2006.

The carrying values of our amortized acquired intangible assets as of the June 30, 2013 are as follows:

	June 30, 2013
	Gross		Accumulated Amortization and write off			Net
Patents	$	617,651	$	(246,499	)	$	371,152
Trademarks	$	45,723	$	(9,413	)	$	36,310
	$	663,374	$	(255,913	)	$	407,462

Of the net amount of $407,462 in intangible assets as of June 30, 2013, approximately 91% is in patents and approximately 9% is in trademarks.  Included in the $663,374 gross amount for patents and trademarks is $157,000 acquired from entities controlled by the founder of the Company in January 2004. The remaining $460,651 represents amounts paid to third parties for legal fees, application fees and other direct costs incurred in the filing and prosecution of patent and trademark applications.

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Stock Options and Warrants

6 Months Ended

Jun. 30, 2013

Stock Options and Warrants [Abstract]

STOCK OPTIONS AND WARRANTS

NOTE 6 - STOCK OPTIONS AND WARRANTS

Equity Incentive Plans

In April 2004, our Board of Directors and the stockholders at that time approved the adoption of a Voting Stock Option Plan (“the Plan”), which provides for the issuance of stock options to eligible employees, consultants, Board members and Advisory Board members of the Company to acquire up to a maximum of 5,000,000 shares of common stock.

Our Board of Directors, which determines the number of options that will be granted, the effective dates of the grants, the option process and the vesting schedules, administers the Plan. In the absence of an established market for the common stock of the Company, the Board of Directors determines the fair market value of our common stock. Options generally expire between five and ten years from the date of grant and automatically terminate 90 days after such optionee ceases to be an eligible individual under the Plan other than by reason of death or disability.

The portion of options granted that is not exercisable on the date the optionee ceases to be an eligible individual under the Plan by reason other than death, shall terminate and be forfeited to the Company on the date of such cessation. An optionee has no right as a stockholder with respect to any shares covered by the options granted to him until a certificate representing such shares is issued to them.

Stock Options

The following table summarizes information about the number and weighted average of the options that were forfeited or expired under the Plan as at June 30, 2013:

	Employee				Non-Employee
			Weighted				Weighted
	Number		Average		Number		Average		Combined
	Of		Exercise		Of		Exercise		Total
	Options		Price		Options		Price		Options
Outstanding at March 31, 2013		1,426,741	$	0.37		18,180	$	1.15		1,444,921
Granted		135,000	$	0.25		-	$	-		135,000
Exercised		-	$	-		-	$	-		-
Forfeited/Cancelled		-	$	-		-	$	-		-
Outstanding at June 30, 2013		1,561,741	$	0.36		18,180	$	1.15		1,579,921

We used the following assumptions to estimate the fair value of options granted under the Plan for the three months ended June 30, 2013 and 2012:

	Equity Incentive Plans for Quarter Ended June 30,
	2013			2012
Expected terms (in years)		5-10			5-10
Volatility (weighted ave.)		65	%		26	%
Risk-free interest rate (weighted ave.)		1.41	%		1.04	%
Expected dividend rate		0	%		0	%

Risk-Free Interest Rate	The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of our stock options.
Expected Volatility	We use historical volatility in deriving our expected volatility assumption because we believe that future volatility over the expected term of the stock options is not likely to differ from the past.
Expected Term	The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by optionees.  We use historical volatility in deriving our expected volatility assumption because it believes that future volatility over the expected term of the stock options is not likely to differ from the past.
Expected Dividend Yield	The expected dividend yield of 0% is based on our history and expectation of dividend payouts. We have not paid and do not anticipate paying any dividends in the near future.
Forfeitures	FASB ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  We only records stock-based compensation expense for awards that are expected to vest. While we generally consider historical forfeitures in its estimates, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. Our estimate for forfeitures may differ from actual forfeitures. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted when we record a true-up for the difference in the period that the awards vest.  We adjust stock-based compensation expense based on our actual forfeitures on an annual basis, if necessary.

As of June 30, 2013, there were unrecognized compensation costs of approximately $0 related to non-vested stock option awards granted after April 2004.

Stock compensation cost, using the graded vesting attribute method in accordance with Codification topic 718, is recognized over the requisite service period, generally 5 years, during which each tranche (one fifth) of shares is earned (zero, one, two, three, and four years).  The value of each tranche is amortized on a straight-line basis.  For the three months ended June 30, 2013, stock based compensation expense was approximately $0, which consisted primarily of stock-based compensation expense related to stock options recognized under GAAP issued to employees.  For the three months ended June 30, 2013, there were no options exercised.

Warrants.

The following table summarizes our warrant activities for the three months ended June 30, 2013:

			Weighted Average
	Number Of		Exercise
	Warrants		Price
Outstanding at March 31, 2013		1,519,534	$	0.80
Granted		-	$	-
Exercised		-	$	-
Forfeited/Cancelled		-	$	-
Outstanding at June 30, 2013		1,519,534	$	0.80

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Notes Payable

6 Months Ended

Jun. 30, 2013

Notes Payable [Abstract]

NOTES PAYABLE

NOTE 4 – NOTES PAYABLE

We have issued warrants for the purchase of shares of our restricted common stock in connection with raising equity and debt financing and for other professional services.  The fair value of warrants issued is determined in accordance with Codification topic 470-20.

Frisco Promissory Note  On April 3, 2007 we entered into a note agreement with the City of Frisco, Texas for $243,000 (the “Frisco Note”) pursuant to an economic incentive package provided through the Frisco Economic Development Corporation (“FEDC”). The note required varying annual principal payments through August 2012.  The note was non-interest bearing; however, interest has been imputed at 12.18% per annum. The unamortized discount at December 31, 2010 was $66,198. Individual annual payments were to be forgiven if certain performance targets are achieved, which include the number of full time employees, square feet occupied in the city of Frisco and the taxable value of business and personal property in the City of Frisco. The first annual payment for 2008 in the amount of $30,000 was forgiven and we recognized the entire $30,000 under “Other income” in the Statement of Operations and Accumulated Deficit for the year ended December 31, 2008.  On March 22, 2011 we entered into an Amended and Restated Performance Agreement with the FEDC. In terms of the Amended and Restated Performance Agreement, the FEDC provided us with economic assistance in the form of the renewal and extension of the outstanding forgivable loan of $213,000 together with revised performance credits over 5 years, commencing on March 22, 2011 and ending on the earlier to occur of: (i) the full payment of the economic incentives; or (ii) March 31, 2016.

The renewed Frisco Note requires varying annual principal payments through December 2015. The face value of the renewed note is $213,000, and the note is non-interest bearing; however, interest has been imputed at 12.34% per annum.

On December 1, 2011 we received the first performance credit from the FEDC in the amount of $26,000 pursuant to the Amended and Restated Performance Agreement. Effective December 1, 2012 we received the performance credit from the FEDC in the amount of $39,000 pursuant to the Amended and Restated Performance Agreement.

The unamortized discount at June 30, 2013 was $34,134, and the net amount of the Frisco Note as at June 30, 2013 was $113,866.

Future principal payments of this note payable are as follows:

2013	$	44,000
2014		52,000
2015		52,000
	$	148,000

Sinacola Subordinated, Convertible Notes.

Third Landlord Note; Fourth Landlord Note:

On December 10, 2009 we entered into a Rent Satisfaction Agreement (the “2009 RSA”) with our landlord, Sinacola Commercial Properties, Ltd. (“Sinacola”). In terms of the 2009 RSA we issued Sinacola two Promissory Notes pursuant to the 2009 RSA – the First Landlord Note and the Second Landlord Note – both of which were subsequently converted to our common stock.

On December 31, 2010 we entered into a second Rent Satisfaction Agreement (the “2010 RSA”) with our landlord, Sinacola. In terms of the 2010 RSA, all of our outstanding rent obligations for the 2010 financial year under our lease agreement, up to and including December 31, 2010 including, but not limited to, base rent, deferred rent, and our share of operating costs, are satisfied in full.

We issued Sinacola two Promissory Notes pursuant to the 2010 RSA, as follows:

Third Landlord Note:  The first note (the “Third Landlord Note”) is a subordinated convertible note in the principal amount of $110,000. The Third Landlord Note carries no interest and is convertible, at Sinacola’s option, into the common stock of the Company at an exercise price of $1.00 per common share on the maturity date.

Fourth Landlord Note:  The second note (the “Fourth Landlord Note”) is a subordinated convertible note in the principal amount of $110,715. The Fourth Landlord Note carries no interest and is convertible into the common stock of the Company at an exercise price of $1.50 per common share on the maturity date.  However, if the common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Fourth Landlord Note is convertible at the Company’s option.

Maturity Date– Each of the Third Landlord Note and the Fourth Landlord Note had a maturity date of October 31, 2012.

We also issued Sinacola with 143,465 penny warrants pursuant to the 2010 RSA (the “2010 Landlord Warrant”).  The 2010 Landlord Warrant is convertible into 143,465 shares of our common stock, and is exercisable in whole or in part at any time on or before December 31, 2015 at an exercise price of $.01 per share.

In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the Third Landlord Note and the Fourth Landlord Note were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We recorded the relative fair value of the warrant issued pursuant to the Third Landlord Note in the amount of $70,853 as a debt discount upon issuance, and amortized this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $39,147, at the time of issuance provided to the holder of the note, which was also amortized as interest expense over the life of the note. We recorded interest expense in the amounts of $0 for each of the three month periods ended June 30, 2013 and 2012 in connection with the Third Landlord Note.  We recorded the relative fair value of the warrant issued pursuant to the Fourth Landlord Note in the amount of $71,314 as a debt discount upon issuance, and amortized this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $34,409, at the time of issuance provided to the holder of the note, which was also amortized as interest expense over the life of the note. We recorded interest expense in the amount of $0 for each of the three month periods ended June 30, 2013 and 2012 in connection with the Fourth Landlord Note.

Fifth Landlord Note; Sixth Landlord Note:

On March 23, 2011 we entered into a third rent satisfaction agreement (the “2011 RSA”) with our landlord, Sinacola. In terms of the 2011 RSA, certain of our rent obligations for the period January 1, 2011 through June 30, 2011 under our lease agreement, including base rent and deferred rent, are satisfied in full.

We issued Sinacola two Promissory Notes pursuant to the 2011 RSA, as follows:

Fifth Landlord Note:  The first note (the “Fifth Landlord Note”) is a subordinated convertible note in the principal amount of $50,000. The Fifth Landlord Note carries no interest and is convertible, at Sinacola’s option, into the common stock of the Company at an exercise price of $1.00 per common share on the maturity date.

Sixth Landlord Note:  The second note (the “Sixth Landlord Note”) is a subordinated convertible note in the principal amount of $50,000. The Sixth Landlord Note carries no interest and is convertible into the common stock of the Company at an exercise price of $1.50 per common share on the maturity date.  However, if the common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Sixth Landlord Note is convertible at the Company’s option.

Maturity Date – Each of the Fifth Landlord Note and the Sixth Landlord Note has a maturity date of September 30, 2013.

We also issued Sinacola with 65,000 penny warrants pursuant to the 2011 RSA (the “2011 Landlord Warrant”).  The 2011 Landlord Warrant is convertible into 65,000 shares of our common stock, and is exercisable in whole or in part at any time on or before March 23, 2016 at an exercise price of $.01 per share.

In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the Fifth Landlord Note and the Sixth Landlord Note were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We recorded the relative fair value of the warrant issued to Fifth Landlord Note in the amount of $32,207 as a debt discount upon issuance, and amortized this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $17,793, at the time of issuance provided to the holder of the note, which we also amortize as interest expense over the life of the note. We recorded interest expense in the amount of $0 for each of the three month periods ended June 30, 2013 and June 30, 2012 in connection with the Fifth Landlord Note.  We recorded the relative fair value of the warrant issued to Sixth Landlord Note in the amount of $32,207 as a debt discount upon issuance, and amortized this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $15,540, at the time of issuance provided to the holder of the note, which we also amortize as interest expense over the life of the note. We recorded interest expense in the amount of $0 for the each of the three month periods ended June 30, 2013 and June 30, 2012 in connection with the Sixth Landlord Note.

Seventh Landlord Note; Eighth Landlord Note:

On August 15, 2011 we entered into a fourth rent satisfaction agreement (the “Second 2011 RSA”) with our landlord, Sinacola. In terms of the Second 2011 RSA, certain of our rent obligations for the period July 1, 2011 through December 31, 2011 under our lease agreement, including base rent and deferred rent, are satisfied in full.

We issued Sinacola two Promissory Notes pursuant to the Second 2011 RSA, as follows:

Seventh Landlord Note:  The first note (the “Seventh Landlord Note”) is a subordinated convertible note in the principal amount of $50,050. The Fifth Landlord Note carries no interest and is convertible, at Sinacola’s option, into the common stock of the Company at an exercise price of $1.00 per common share on the maturity date.

Eighth Landlord Note:  The second note (the “Eighth Landlord Note”) is a subordinated convertible note in the principal amount of $50,050. The Eighth Landlord Note carries no interest and is convertible into the common stock of the Company at an exercise price of $1.50 per common share on the maturity date.  However, if the common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Sixth Landlord Note is convertible at the Company’s option.

Maturity Date – Each of the Seventh Landlord Note and the Eighth Landlord Note has a maturity date of November 30, 2013.

We also issued Sinacola with 65,065 penny warrants pursuant to the Second 2011 RSA (the “Second 2011 Landlord Warrant”).  The Second 2011 Landlord Warrant is convertible into 65,065 shares of our common stock, and is exercisable in whole or in part at any time on or before August 15, 2016 at an exercise price of $.01 per share.

In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the Seventh Landlord Note and the Eighth Landlord Note were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We recorded the relative fair value of the warrant issued to Seventh Landlord Note in the amount of $32,223 as a debt discount upon issuance, and we amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $17,827, at the time of issuance provided to the holder of the note, which we also amortize as interest expense over the life of the note. We recorded interest expense in the amounts of $5,460 and $5,460 for the three months ended June 30, 2013 and June 30, 2012, respectively in connection with the Seventh Landlord Note.  We recorded the relative fair value of the warrant issued to Eighth Landlord Note in the amount of $32,223 as a debt discount upon issuance, and we amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrant with the subordinated convertible promissory note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $15,540, at the time of issuance provided to the holder of the note, which we also amortize as interest expense over the life of the note. We recorded interest expense in the amounts of $5,210 and $5,210 for the three months ended June 30, 2013 and June 30, 2012, respectively in connection with the Eighth Landlord Note.

The following table reflects the carrying values of our short-term and long-term notes payable as of June 30, 2013:

	Effective Interest Rate			Principal		Discount		June 30, 2013
Current notes payable
Sinacola, Third Landlord Note		0	%	$	110,000		-	$	110,000
Sinacola, Fourth Landlord Note		0.00	%		110,715		-		110,715
Sinacola, Fifth Landlord Note		0.00	%		50,000		-		50,000
Sinacola, Sixth Landlord Note		0.00	%		50,000		-		50,000
Sinacola, Seventh Landlord Note		41.64	%		50,050		10,920		39,130
Sinacola, Eighth Landlord Note		43.64	%		50,050		10,421		39,629
Beaufort Ventures, PLC		12	%		25,000		-		25,000
Frisco EDC		12.34	%		44,000		6,206		37,794
Total short-term notes payable				$	489,815		27,547	$	462,268
Long-term notes payable
Frisco EDC		12.34	%	$	104,000		27,928	$	76,072
Total long-term notes payable				$	104,000	$	27,928	$	76,072
Total short-term and long-term notes payable				$	593,815	$	55,475	$	538,340

The following table summarizes our outstanding notes payable as of June 30, 2013 and December 31, 2012:

	June 30, 2013			December 31, 2012
Current portion of notes payable	$	62,794		$	31,588
Current portion of convertible notes payable		399,474			367,001
Current portion of notes payable, net	$	462,268		$	398,589
Long-term portion of notes payable	$	104,000		$	104,000
Less: Unamortized discount		(27,928	)		(27,928	)
		76,072			76,072
Long-term portion of convertible notes payable	$	-		$	-
Less: Unamortized discount		-			-
		-			-
Long-term portion of notes payable, net	$	76,072		$	76,072

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Shareholders' Equity (Details) (USD $)			6 Months Ended					3 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Series A Convertible Preferred Stock [Member]	Jul. 02, 2008 Series A Convertible Preferred Stock [Member]	Mar. 22, 2006 Series A Convertible Preferred Stock [Member]	Dec. 31, 2005 Series A Convertible Preferred Stock [Member]	Dec. 31, 2005 Original Rights Agreement [Member]	Jun. 30, 2013 Common stock [Member]
Shareholders equity (Textual)
Preferred stock, shares authorized	25,000,000	25,000,000				2,000,000	5,000,000
Increase in issuance of Series A Preferred stock shares				3,143,237	3,100,000
Series A convertible preferred stock, shares issued	768,750	818,750
Series A convertible preferred stock, shares outstanding	768,750	818,750
Preferred stock, par value	$ 0.0005	$ 0.0005					$ 0.0005
Original issue price of preferred stock			$ 1.00
Convertible preferred stock, conversion ratio			1.22
Dividend payable on Series A preferred stock, quarterly, non-cumulative			$ 0.01
Percentage of claim upon liquidation			100.00%
Cash proceeds from conversion			$ 3,000,000
Cash proceeds from conversion, price paid per share			$ 5.00
Redemption period, Maximum			10 years
Redemption period minimum			2 years
Redemption value per share			$ 1.00
Preferred stock, voting rights			Holder of each share of Series A Preferred has the right to one vote for each share of common stock into which such share of Series A Preferred could be converted.
Cash proceeds from issuance of common shares, Shares								508,350
Common stock issued under Asset Purchase and Stock Transfer Agreement, value								5,547
Common stock issued under Asset Purchase and Stock Transfer Agreement, shares								7,500
Common stock subscribed for but not issued, shares	483,529	0
Common stock subscribed for but not issued, value								260,275
Common shares issued to employee compensation, Shares								2,500
Common shares issued to employee compensation, Value								1,525
Common stock, par value	$ 0.0004	$ 0.0004
Common stock, shares authorized	100,000,000	100,000,000
Common stock, Shares issued	23,685,846	22,548,678
Common stock, Shares outstanding	23,685,846	22,548,678
Other stockholder equity	$ 253,206

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2013

Segment Information [Abstract]

Revenue by geographic region

	Three months ended June 30,
	2013		2012
Product Revenue:
United States - product sales	$	362,822	$	18,091
ROW - product sales		749		44,800
ROW - license fees/service revenue		112,500		-
Totals	$	476,071	$	62,891

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Summary of Significant Accounting Policies (Details 3)	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Options to purchase common stock
Schedule of antidilutive securities excluded from computation of earnings per share
Antidilutive securities excluded from computation of earnings per share	1,579,921	1,554,530
Convertible Preferred Stock
Schedule of antidilutive securities excluded from computation of earnings per share
Antidilutive securities excluded from computation of earnings per share	937,875	1,364,875
Convertible note shares outstanding
Schedule of antidilutive securities excluded from computation of earnings per share
Antidilutive securities excluded from computation of earnings per share	411,985	1,696,331

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Notes Payable (Details) (Frisco Note payable [Member], USD $)	Jun. 30, 2013
Frisco Note payable [Member]
Summary of future principal payments of Frisco note payable
2013	$ 44,000
2014	52,000
2015	52,000
Note payable, Total	$ 148,000

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Fair Value Measurements (Details) (USD $)	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
Summary of financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	$ 96,207	$ 13,514	$ 22,152	$ 65,118
Fair Value, Measurements, Recurring [Member]
Summary of financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	96,207
Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Summary of financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	96,207
Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Cash [Member]
Summary of financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	96,207
Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Summary of financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Cash [Member]
Summary of financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents
Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Summary of financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents
Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Cash [Member]
Summary of financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents

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Stock Options and Warrants (Details Textual) (USD $)	1 Months Ended	3 Months Ended		6 Months Ended
	Apr. 30, 2004	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Stock option and warrants (Textual)
Maximum number of shares acquired under voting stock option plan	5,000,000
Expiration period of option, Maximum	10 years
Expiration period of option, Minimum	5 years
Termination period of option for ineligible individual	90 days
Expected dividend rate		0.00%	0.00%
Unrecognized compensation costs related to non-vested stock option		$ 0		$ 0
Stock based compensation cost recognition description		Each tranche (one fifth) of shares is earned (zero, one, two, three, and four years).
Stock based compensation expense		$ 0		$ 1,525

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Condensed Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Balance Sheets [Abstract]
Preferred stock, par value	$ 0.0005	$ 0.0005
Preferred stock, shares authorized	25,000,000	25,000,000
Series A convertible preferred stock, shares issued	768,750	818,750
Series A convertible preferred stock, shares outstanding	768,750	818,750
Common stock, par value	$ 0.0004	$ 0.0004
Common stock, shares authorized	100,000,000	100,000,000
Voting common stock, shares issued	23,685,846	22,548,678
Voting common stock, shares outstanding	23,685,846	22,548,678
Common stock subscribed but not issued, shares	483,529	0

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Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 9 – FAIR VALUE MEASUREMENTS

Effective January 1, 2009, the Company adopted new fair value accounting guidance. The adoption of the guidance was limited to financial assets and liabilities and did not have a material effect on the Company’s financial condition or results of operations.

The guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact business and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs to the valuation methodology that is significant to the measurement of fair value of assets or liabilities.

Assets Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis which were comprised of the following types of instruments as of June 30, 2013:

	Total		Level 1		Level 2		Level 3
Cash (1)	$	96,207	$	96,207		-		-
Total cash equivalents as of June 30, 2013	$	96,207	$	96,207	$	-	$	-

(1) Included in cash and cash equivalents on the Company's Balance Sheet.

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Condensed Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$ (361,958)	$ (543,958)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation	9,554	81,818
Amortization of intangible assets	14,978	14,883
Prior period adjustment	(455)
Amortization of debt discount and warrant fair values related to convertible loans	32,472	104,611
Amortization of discount on notes payable	6,206	6,206
Amortization of other assets	46,474
Changes in deferred rent and leasehold improvement allowance	20,625	(43,386)
Issuance of common stock options to employees as compensation	(12,060)	17,209
Issuance of common stock for compensation	1,525
Issuance of common stock in exchange for services	19,023
Issuance of common stock in connection with research & development arrangements	5,550
Changes in current assets and liabilities:
Accounts receivable	(62,430)	(8,370)
Inventory	(67,179)	118
Accounts payable and accrued liabilities	107,870	32,985
Deferred revenue	(237,500)	155,613
NET CASH USED IN OPERATING ACTIVITIES	(477,305)	(182,273)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of intangible assets	(3,961)
Other assets
Purchases of property and equipment	(5,471)
NET CASH USED IN INVESTING ACTIVITIES	(9,432)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds, net	25,000	47,953
Payment of capital leases	12,449	(3,871)
Proceeds from issuance of common stock for cash	59,617
Proceeds from common stock subscribed	468,864
Proceeds from exercise of common stock options and warrants	3,500	95,225
NET CASH PROVIDED BY FINANCING ACTIVITIES	569,430	139,307
Net change in cash and cash equivalents	82,693	(42,966)
Cash and cash equivalents, at beginning of period	13,514	65,118
Cash and cash equivalents, at end of period	96,207	22,152
Cash paid during the period for:
Interest	12,583	721
Income taxes
Supplemental non-cash investing and financing activities:
Promissory subordinated convertible notes converted to common stock		354,563
Shareholder loans converted to common stock		25,622
Common stock issued in connection with research & development arrangements	$ 5,547

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Condensed Balance Sheets (USD $)	Jun. 30, 2013	Dec. 31, 2012
Current assets
Cash and cash equivalents	$ 96,207	$ 13,514
Accounts receivable	80,917	18,487
Inventory	288,523	221,345
Total current assets	465,647	253,346
Property and equipment, net	23,516	27,599
Intangible assets, net	407,462	418,479
Other assets	469,899	516,373
TOTAL ASSETS	1,366,524	1,215,797
Current liabilities
Accounts payable and accrued expenses	724,150	595,655
Capital leases payable - current	308,526	296,116
Notes payable - current	462,268	398,589
Deferred revenue	261,726	499,225
Total current liabilities	1,756,670	1,789,585
Long-term liabilities
Capital leases payable	2,304	2,265
Notes payable	76,072	76,072
Total long-term liabilities	78,376	78,337
TOTAL LIABILITIES	1,835,046	1,867,922
COMMITMENTS AND CONTINGENCY
STOCKHOLDERS' DEFICIT
Preferred stock, par value $0.0005 per share; 25,000,000 shares authorized; 768,750 Series A convertible preferred shares issued and outstanding as of June 30, 2013 and 818,750 shares issued and outstanding as of December 31, 2012.	384	409
Common stock, par value $0.0004 per share; 100,000,000 shares authorized; 23,685,846 shares of voting common stock issued and outstanding as of June 30, 2013 and 22,548,678 shares issued and outstanding as of December 31, 2012	9,470	9,016
Common stock, subscribed but not issued, par value $0.0004 per share; 100,000,000 shares authorized; 483,529 shares of voting common stock subscribed but not issued as of June 30, 2013 and 0 shares subscribed but not issued as of December 31, 2012.	193
Additional paid-in capital	14,142,511	13,597,117
Accumulated deficit	(14,621,080)	(14,258,667)
TOTAL STOCKHOLDERS' DEFICIT	(468,521)	(652,125)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 1,366,524	$ 1,215,797

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Segment Information (Details) (USD $)	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Schedule of revenue and segment reporting
Total revenues	$ 476,071	$ 62,891
United States - product sales [Member]
Schedule of revenue and segment reporting
Total revenues	362,822	18,091
ROW - product sales [Member]
Schedule of revenue and segment reporting
Total revenues	749	44,800
ROW - license fees/service revenue [Member]
Schedule of revenue and segment reporting
Total revenues	$ 112,500

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Summary of Significant Accounting Policies (Details) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Summary of Inventories
Parts inventory	$ 173,813
Work in process	97,785
Finished goods	16,926
Total inventories	$ 288,523	$ 221,345

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Notes Payable (Tables)

6 Months Ended

Jun. 30, 2013

Notes Payable [Abstract]

Carrying values of short-term and long-term notes payable

	Effective Interest Rate			Principal		Discount		June 30, 2013
Current notes payable
Sinacola, Third Landlord Note		0	%	$	110,000		-	$	110,000
Sinacola, Fourth Landlord Note		0.00	%		110,715		-		110,715
Sinacola, Fifth Landlord Note		0.00	%		50,000		-		50,000
Sinacola, Sixth Landlord Note		0.00	%		50,000		-		50,000
Sinacola, Seventh Landlord Note		41.64	%		50,050		10,920		39,130
Sinacola, Eighth Landlord Note		43.64	%		50,050		10,421		39,629
Beaufort Ventures, PLC		12	%		25,000		-		25,000
Frisco EDC		12.34	%		44,000		6,206		37,794
Total short-term notes payable				$	489,815		27,547	$	462,268
Long-term notes payable
Frisco EDC		12.34	%	$	104,000		27,928	$	76,072
Total long-term notes payable				$	104,000	$	27,928	$	76,072
Total short-term and long-term notes payable				$	593,815	$	55,475	$	538,340

Summary of notes payable outstanding

	June 30, 2013			December 31, 2012
Current portion of notes payable	$	62,794		$	31,588
Current portion of convertible notes payable		399,474			367,001
Current portion of notes payable, net	$	462,268		$	398,589
Long-term portion of notes payable	$	104,000		$	104,000
Less: Unamortized discount		(27,928	)		(27,928	)
		76,072			76,072
Long-term portion of convertible notes payable	$	-		$	-
Less: Unamortized discount		-			-
		-			-
Long-term portion of notes payable, net	$	76,072		$	76,072

Frisco Note payable [Member]

Debt Instrument [Line Items]

Future principal payments of Frisco note payable

2013	$	44,000
2014		52,000
2015		52,000
	$	148,000

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Stock Options and Warrants (Details 2) (Warrants [Member], USD $)	3 Months Ended
	Jun. 30, 2013
Warrants [Member]
Summary of warrants activity
Outstanding Options/Warrants, beginning balance	1,519,534
Outstanding options/Warrants, Weighted Average Exercise Price, beginning balance	$ 0.80
Granted
Granted, Weighted Average Exercise Price
Exercised
Exercised, Weighted Average Exercise Price
Forfeited/Cancelled
Forfeited/Cancelled, Weighted Average Exercise Price
Outstanding Options/Warrants, ending balance	1,519,534
Outstanding Options, Weighted Average Exercise Price, ending balance	$ 0.80

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Subsequent Events (Details) (USD $)	12 Months Ended	6 Months Ended
	Dec. 31, 2006 Vencore Solutions LLC [Member]	Jun. 30, 2013 Subsequent Event [Member]
Subsequent Events (Textual)
Balance outstanding as debt obligation	$ 307,661.83
Terms of agreement with Vencore Solutions, LLC		The Agreement provides for the following: (1) Payment Moratorium. Vencore grants a payment moratorium (the "Payment Moratorium") to us which expires on December 31, 2013. The Debt Obligation shall remain $307,661.83 and no further interest or late charges shall accrue until December 31, 2013. (2) Settlement of Debt Obligation. Vencore shall consider the Debt Obligation settled in full providing, on or before December 31, 2013, we: (a) Pay the sum of $150,000.00 to Vencore; and (b) Provide Vencore, as holder, 75,000 shares of non-restricted OxySure common stock.
Issuance of non-restricted shares in future		75,000

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Notes Payable (Details 2) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Summary of notes payable outstanding
Current portion of notes payable	$ 62,794	$ 31,588
Current portion of convertible notes payable	399,474	367,001
Total short-term notes payable	462,268	398,589
Long-term portion of notes payable	104,000	104,000
Less: Unamortized discount	(27,928)	(27,928)
Long-term portion of notes payable, net	76,072	76,072
Long-term portion of convertible notes payable
Less: Unamortized discount
Long-term convertible notes payable net of unamortized discount
Total long-term notes payable	$ 76,072	$ 76,072

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Intangible Assets (Details) (USD $)	Jun. 30, 2013
Summary of carrying values of amortized acquired intangible assets
Intangible assets, Gross	$ 663,374
Intangible Assets, Accumulated Amortization	(255,913)
Intangible assets, Net	407,462
Patents [Member]
Summary of carrying values of amortized acquired intangible assets
Intangible assets, Gross	617,651
Intangible Assets, Accumulated Amortization	(246,499)
Intangible assets, Net	371,152
Trademarks [Member]
Summary of carrying values of amortized acquired intangible assets
Intangible assets, Gross	45,723
Intangible Assets, Accumulated Amortization	(9,413)
Intangible assets, Net	$ 36,310

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Intangible Assets (Details Textual) (USD $)	3 Months Ended		6 Months Ended		0 Months Ended	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Intangible_Asset	Dec. 31, 2012	Jan. 15, 2004 Asset purchase and stock transfer agreement [Member]	Jun. 30, 2013 Patents [Member]	Jun. 30, 2012 Patents [Member]	Jun. 30, 2013 Patents [Member]	Jun. 30, 2013 Trademarks [Member]	Jan. 15, 2004 Patents and Trademarks [Member]
Intangible Assets (Textual)
Impairment of intangible assets	$ 0	$ 0				$ 0	$ 0
Issuance of common stock under Asset Purchase and Stock Transfer Agreement, shares					14,000,000
Promissory notes issued under Asset Purchase and Stock Transfer Agreement					150,000
Common stock issued under Asset Purchase and Stock Transfer Agreement, value					7,000
Non-recourse promissory note bearing interest rate					6.50%
Aggregate intangible assets, Asset percentage								91.00%	9.00%
Gross amount of acquired intangible assets	663,374		663,374			617,651		617,651	45,723	157,000
Amounts paid to third parties for legal fees, application fees and other direct costs			460,651
Number of intangible assets			2
Intangible assets, net	$ 407,462		$ 407,462	$ 418,479

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Related Party Transactions

6 Months Ended

Jun. 30, 2013

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 8 – RELATED PARTY TRANSACTIONS

A summary of the related party financings and notes as at June 30, 2013 is as follows:

	Shareholder advances
Related party	Julian Ross (1)			Other
Amount	$	153,983		$	0
Stated interest rate		0	%		0	%
Maturity		n/a			n/a

(1) Our CEO, Mr. Ross provides us shareholder cash advances and other consideration from time to time to fund working capital.

During the three months ended June 30, 2013 we paid Timothy Hutton a total of $10,600 in interest expense related to financing and other considerations provided to us. Timothy Hutton is the spouse of Vicki Jones, a director of us.

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Summary of Significant Accounting Policies (Details 1) (USD $)	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Schedule of stock based compensation expense
Common Stock options issued for compensation		$ 7,695
Common stock options and warrants issued for services
Total		$ 7,695

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Stock Options and Warrants (Details) (Stock Options [Member], USD $)	3 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Summary of option activity
Outstanding Options/Warrants, beginning balance	1,444,921	1,444,921
Outstanding options/Warrants, Weighted Average Exercise Price, beginning balance	$ 0.80
Granted	135,000
Stock option/warrant exercised
Forfeited/Cancelled
Outstanding Options/Warrants, ending balance	1,579,921	1,444,921
Outstanding Options, Weighted Average Exercise Price, ending balance	$ 0.80
Non-Employee [Member]
Summary of option activity
Outstanding Options/Warrants, beginning balance	18,180	18,180
Outstanding options/Warrants, Weighted Average Exercise Price, beginning balance	$ 1.15	$ 1.15
Granted
Granted, Weighted Average Exercise Price
Stock option/warrant exercised
Exercised, Weighted Average Exercise Price
Forfeited/Cancelled
Forfeited/Cancelled, Weighted Average Exercise Price
Outstanding Options/Warrants, ending balance	18,180	18,180
Outstanding Options, Weighted Average Exercise Price, ending balance	$ 1.15	$ 1.15
Employee [Member]
Summary of option activity
Outstanding Options/Warrants, beginning balance	1,426,741	1,426,741
Outstanding options/Warrants, Weighted Average Exercise Price, beginning balance	$ 0.37	$ 0.37
Granted	135,000
Granted, Weighted Average Exercise Price	$ 0.25
Stock option/warrant exercised
Exercised, Weighted Average Exercise Price
Forfeited/Cancelled
Forfeited/Cancelled, Weighted Average Exercise Price
Outstanding Options/Warrants, ending balance	1,561,741	1,426,741
Outstanding Options, Weighted Average Exercise Price, ending balance	$ 0.36	$ 0.37

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Segment Information

6 Months Ended

Jun. 30, 2013

Segment Information [Abstract]

SEGMENT INFORMATION

NOTE 11 – SEGMENT INFORMATION

We are organized as, and operate in, one reportable segment: the development, distribution and sale of specialty respiratory products and related medical products, accessories, and services.. Our chief operating decision-maker is our Chief Executive Officer. Our Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of evaluating financial performance and allocating resources, accompanied by information about revenue by geographic regions. Our assets are primarily located in the United States of America and not allocated to any specific region and we do not measure the performance of our geographic regions based upon asset-based metrics. Therefore, geographic information is presented only for revenue. Revenue by geographic region is based on the ship to address on our customer orders.

The following presents total revenue by geographic region for the three month periods ended June 30, 2013 and 2012:

	Three months ended June 30,
	2013		2012
Product Revenue:
United States - product sales	$	362,822	$	18,091
ROW - product sales		749		44,800
ROW - license fees/service revenue		112,500		-
Totals	$	476,071	$	62,891

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Commitments and Contingency

6 Months Ended

Jun. 30, 2013

Commitments and Contingency [Abstract]

COMMITMENTS AND CONTINGENCY

NOTE 7 – COMMITMENTS AND CONTINGENCY

Leases

Operating Lease –   During 2007, we entered into a long-term non-cancelable lease for office space, which expired in October 2012.  As at June 30, 2013 we rented our space on a month to month basis while a new lease is being negotiated with our landlord.

Capital lease – During 2006 we entered into a master lease agreement with a VenCore Solutions, LLC (“Vencore”) that allowed us to lease up to $750,000 of equipment (the “Vencore Master Lease”). This maximum amount available under this lease was subsequently increased to $805,000. The Vencore Master Lease required a security deposit of 10% of the amount of each individual lease schedule, a payment of Series A Convertible Preferred Stock shares equal to 5% of the lease divided by $1.00, and 36 monthly payments of 3.33% of the lease. We have the option to purchase the equipment at the end of each lease term at the lesser of 12% of the original equipment cost or the fair market value. On March 4, 2011 Vencore agreed to a payment moratorium, which was to continue until the earlier to occur of (i) the execution and completion of a mutually agreed upon cash settlement ("Settlement"), or (ii) the execution of a mutually agreed upon repayment plan ("Plan") or February 29, 2012.

On July 9, 2012 we entered into a second moratorium agreement (“Second Payment Moratorium”) with Vencore. The Second Payment Moratorium provides for the following:

a)  The balance outstanding to Vencore remains the balance outstanding at the end of the first payment moratorium, which was $307,661.83 (“Debt Obligation”);

b)  The term of the Second Payment Moratorium (the “Moratorium Period”) shall expire on the earlier to occur of: (i) July 1, 2013;  (ii) a cash settlement or repayment plan being entered into; or (iii) a merger or acquisition of OxySure or the sale of substantially all of its assets (collectively a “Sale”);

c)  We will not be obligated to make any payments during the Moratorium Period;

d)  No late charges or interest will accrue during the Moratorium Period;

e)  Any amounts we may pay towards the Debt Obligation during the Moratorium Period shall reduce the Debt Obligation;

f)  In the event of a Sale the entire Debt Obligation shall immediately become due and payable; and

g)  Vencore shall make no demands or take any actions against us during the Moratorium Period.

In exchange for the Second Payment Moratorium, we issued to Vencore two warrants (the “Warrants”) as follows:

(a)  A warrant as to 22,500 common shares at an exercise price per share of $0.82; and

(b)  A warrant as to 32,500 common shares at an exercise price per share of $1.00.

The terms of the Warrants are 5 years each and Vencore has the ability to exercise the Warrants on a cashless/net-issuance basis.

Between 2007 and 2012, we entered into agreements with other finance companies (other than Vencore) to acquire equipment with interest rates ranging from 7% to 19% with three to five-year lease terms. Minimum non-cancellable lease payments required under all capital leases as at June 30, 2013 are as follows:

2013	308,526
2014	1,728
2015	576
Total	310,829
Less amounts representing interest	(510	)
Total	310,319

Legal Proceedings

The Company is subject to litigation in the normal course of business, none of which management believes will have a material adverse effect on the Company’s financial statements. As of June 30, 2013 the Company was not a party to any litigation matters.

Indemnification

Under the indemnification provisions of our customer agreements, we routinely agree to indemnify and defend our customers against infringement of any patent, trademark, or copyright of any country or the misappropriation of any trade secret, arising from the customers’ legal use of our products or services. The exposure to us under these indemnification provisions is generally limited to the total amount paid by the customers under pertinent agreements. However, certain indemnification provisions potentially expose us to losses in excess of the aggregate amount received from the customer. To date, there have been no claims against us or our customers pertaining to such indemnification provisions and no amounts have been recorded.

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Balance Sheet Components

6 Months Ended

Jun. 30, 2013

Balance Sheet Components [Abstract]

BALANCE SHEET COMPONENTS

NOTE 2 – BALANCE SHEET COMPONENTS

	June 30,			December 31,
	2013			2012
Cash and cash equivalents:
Cash	$	96,207			13,514
Total cash and cash equivalents	$	96,207		$	13,514
Inventories:
Total inventories	$	288,523		$	221,345
Accounts Receivable, net of allowances	$	80,917		$	18,487
Property and equipment, net:
Machinery and equipment		919,736			919,736
Leasehold improvements		547,856			547,856
Computer equipment and furniture and fixtures		242,268			236,797
Software		10,691			10,691
		1,720,551			1,715,080
Accumulated depreciation and amortization		(1,697,034	)		(1,687,481	)
Total property and equipment, net	$	23,516		$	27,599
Other Assets:
Deferred loan costs, net		199,778			224,751
Security deposits		53,274			53,274
Website development, software, URLs, net		216,847			238,348
	$	469,899		$	516,373
Accounts payable and accrued expenses:
Leasehold Improvement Allowance		-			-
Accounts payable		206,915			70,141
Accrued interest		-			-
Accrued expenses for website and software		143,286			143,286
Stockholder advances		153,983			207,472
Other accrued liabilities		219,966			174,756
Total accounts payable and accrued expenses	$	724,150		$	595,655

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Segment Information (Details Textual)	6 Months Ended
	Jun. 30, 2013 Segment
Segment Information (Textual)
Number of reportable segments	1

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Commitments and Contingency (Details Textual) (USD $)	6 Months Ended	12 Months Ended	72 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2007	Dec. 31, 2012	Dec. 31, 2006 Vencore Solutions LLC [Member]	Jun. 30, 2013 Vencore Solutions LLC [Member]	Jun. 30, 2013 Vencore Solution LLC One [Member]
Commitments and contingency (Textual)
Operating lease expiration date		October 2012.
Maximum lease allowed for equipment				$ 750,000
Increase in amount of capital lease				805,000
Minimum percentage of security deposit require for lease				10.00%
Payment description of capital lease				Payment of Series A Convertible Preferred Stock shares equal to 5% of the lease divided by $1.00, and 36 monthly payments of 3.33% of the lease.
Purchase of capital lease equipment, Description				Option to purchase the equipment at the end of each lease term at the lesser of 12% of the original equipment cost or the fair market value.
Balance outstanding as debt obligation				$ 307,661.83
Number of Shares Underlying Warrants					22,500	32,500
Exercise Price					$ 0.82	$ 1.00
Warrants ability to exercise term	5 years
Minimum interest rate to acquire equipment			7.00%
Maximum interest rate to acquire equipment			19.00%
Term of lease	Three to five-year.

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Summary of Significant Accounting Policies (Details Textual) (USD $)	0 Months Ended	3 Months Ended		6 Months Ended
	Jul. 19, 2004	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Patent	Jun. 30, 2012	Dec. 31, 2012
Summary of Significant Accounting Policies (Textual)
Expected term of the stock options				5 years
Number of issued patents owned by company				9
Stockholders' equity, reverse stock split	1-for-5
Deferred revenue		$ 261,726		$ 261,726		$ 499,225
Credit period granted to recurring customers on sales				30 days
Depreciation		4,671	40,314	9,554	81,818
Impairment charges for patents		0	0
Amortization expense of other assets		23,237	0
Bad debts expenses		0	0
Research and development expense		183,447	1,175	220,158	1,235
Stock-based compensation expense related to stock options issued to the employees			7,695
Common stock options and warrants issued for services
Advertising and promotion costs		$ 133,730	$ 18,134
Furniture and Fixtures [Member]
Summary of Significant Accounting Policies (Textual)
Property and equipment, useful life				5 years
Software [Member]
Summary of Significant Accounting Policies (Textual)
Property and equipment, useful life				3 years
Software [Member] | Minimum [Member]
Summary of Significant Accounting Policies (Textual)
Property and equipment, useful life				3 years
Software [Member] | Maximum [Member]
Summary of Significant Accounting Policies (Textual)
Property and equipment, useful life				5 years
Machinery and Equipment [Member] | Minimum [Member]
Summary of Significant Accounting Policies (Textual)
Property and equipment, useful life				5 years
Machinery and Equipment [Member] | Maximum [Member]
Summary of Significant Accounting Policies (Textual)
Property and equipment, useful life				7 years
Leasehold Improvements [Member] | Minimum [Member]
Summary of Significant Accounting Policies (Textual)
Property and equipment, useful life				3 years
Leasehold Improvements [Member] | Maximum [Member]
Summary of Significant Accounting Policies (Textual)
Property and equipment, useful life				7 years

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded; and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition of the Company.  The interim financial statements include all adjustments which, in the opinion of management, are necessary in order to make the financial statements not misleading.

The accompanying Condensed Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The Company's Condensed Financial Statements reflect all adjustments that management believes are necessary for the fair presentation of their financial position, results of operations, comprehensive loss and cash flows for the periods presented. The information at December 31, 2012 in the Company's Condensed Balance Sheet included in this quarterly report was derived from the audited Balance Sheet included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on April 2, 2013. Where applicable, the Company's 2012 Annual Report on Form 10-K is referred to in this quarterly report as the “2012 Annual Report.” This quarterly report should be read in conjunction with the 2012 Annual Report.

Intercompany balances and transactions, if applicable have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts for consistency with the current period presentation.

Use of estimates

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period.  Actual results could differ from those estimated.

Revenue Recognition

Revenue Recognition - We recognize revenue when persuasive evidence of an arrangement exists, shipment has occurred, the price is fixed or determinable, and collectability is reasonably assured.  Revenues are recognized from product sales, net of discounts and rebates.  This revenue recognition policy is applied to both customers and distributors.

Fees from licensees desiring to manufacture and distribute our products or derivative products using our intellectual property include initial license fees and royalties.  Initial license fees are generally recognized upon granting of the license to the licensee.  Royalties are recognized in the period earned.

Deferred Revenue and Income

Deferred Revenue and Income - We defer revenue and income when we invoice a customer or a customer makes a payment and the requirements of revenue recognition have not been met (i.e. persuasive evidence of an arrangement exists, shipment from a company warehouse has occurred, the price is fixed or determinable and collectability is reasonably assured). Deferred Revenue was $261,726 and $499,225 as at June 30, 2013 and December 31, 2012, respectively.

Cash and Cash Equivalents

Cash and Cash Equivalents - Cash consists of all highly liquid investments purchased with maturity of three months or less to be cash equivalents. Cash and cash equivalents may at times exceed Federally-insured limits. To minimize this risk, the Company places its cash and cash equivalents with high credit quality institutions.

Inventory

Inventory – Our inventory consists of raw material and components for our portable oxygen systems as well as completed products and accessories.   Inventories are computed using the lower of cost or market, which approximates actual cost on a first-in first-out basis. Inventory components are parts, work-in-process and finished goods. Finished goods are reported as inventories until the point of title transfer to the customer. We write down our inventory value for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Management has established inventory reserves to cover estimated inventory losses for all work-in-process and finished goods related to products we manufactured, as well as raw material and components for those products that had no potential use in products to be manufactured in the future. Management is required to make judgments about the future benefit of our raw materials and components. Actual reserve requirements could differ significantly from Management’s estimates, which could have a significant unfavorable impact on our future gross margins.

At June 30, 2013 inventories consisted of the following:

	June 30, 2013
Parts inventory	$	173,813
Work in process		97,785
Finished goods	$	16,926
Total inventories	$	288,523

Concentration of Credit Risk

Concentration of Credit Risk – We sell our products throughout the United States as well as in certain other countries.  Sales to its recurring customers in the United States are generally granted on net 30-day credit terms. We perform periodic credit evaluations of our recurring customers and generally do not require collateral. In general, we require prepayment on all sales to customers outside the United States. An allowance for doubtful accounts is maintained for potential credit losses, which losses historically have not been significant.

We invest our cash in deposits and money market funds with major financial institutions.  We place our cash investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument.

Fair Value of Financial Instruments

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable and accounts payable.  We believe that the recorded values of all of our other financial instruments approximate their fair values because of their nature and respective maturity dates or durations. The fair value of our long-term debt is determined by using estimated market prices. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1:  Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2:  Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3: Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The fair value of the majority of our cash equivalents was determined based on “Level 1” inputs. We do not have any marketable securities in the “Level 2” and “Level 3” category. We believe that the recorded values of all our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Property and Equipment

Property and Equipment – Property and equipment are recorded at cost with depreciation and amortization provided over the shorter of the remaining lease term or the estimated useful life of the improvement ranging from three to seven years. Renewals and betterments that materially extend the life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. Furniture and fixtures are depreciated over five years. Machinery and equipments are depreciated over five to seven years. Software is depreciated over three years.  Leasehold improvements are computed using the shorter of the estimated useful lives of the assets or the lease terms.  Depreciation expense was $4,671 and $40,314 for the three month periods ended June 30, 2013 and 2012, respectively.

Other Long-Lived Assets

Other Long-Lived Assets – We have two types of intangible assets – patents and trademarks.  Intangible assets are carried at cost, net of accumulated amortization.  Amortization expense for patents and trademarks was $7,489 and $7,442 for the three month periods ended June 30, 2013 and 2012, respectively.

Intangible assets with definite useful lives and other long-lived assets are tested for impairment if certain impairment indicators are identified.  Management evaluates the recoverability of its identifiable intangible assets in accordance with applicable accounting guidance, which requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. Certain events and circumstances the Company considered in determining whether the carrying value of identifiable intangible assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in its business strategy.  In determining if impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.  If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Impairment charges for patents were $0 for each of the three month periods ended June 30, 2013 and 2012.

Other Assets

Other Assets – We record Other Assets net of accumulated amortization. Amortization expense for Other Assets was $23,237 and $0 for the three month periods ended June 30, 2013 and 2012, respectively.

Capitalization of software: The Company accounts for internal-use software and website development costs, including the development of its partner marketplaces in accordance with ASC 350-50 (Intangibles – Website cost). The Company capitalizes internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use software, as well as any external direct costs. It amortizes these costs over their estimated useful lives, which typically range between three to five years. The Company’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on management’s judgment as to the product life cycle.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments.  We periodically review these allowances, including an analysis of the customers’ payment history and information regarding the customers’ creditworthiness.  Actual write-offs have not been materially different from the estimated allowance. We recorded bad debt expense of $0 for each of the three month periods ended June 30, 2013 and 2012.

Research and Development Costs

Research and Development Costs – Costs associated with the development of our products are charged to expense as incurred.  $183,444 and $1,175 were incurred in the three month periods ended June 30, 2013 and 2012, respectively.

Income Taxes

Income Taxes - In accordance with Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”), we account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our Consolidated Financial Statements, but have not been reflected in our taxable income.  A valuation allowance has been established to reduce deferred tax assets to their estimated realizable value.  Therefore, we provide a valuation allowance to the extent that we do not believe it is more likely than not that we will generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets.  We recognize interest and penalties related to unrecognized tax benefits in income tax expense.

Equity Warrants

Equity Warrants - We issued warrants to purchase shares of our common stock in connection with convertible notes. In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the notes were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We record the fair value of the warrants at the time of issuance as additional paid in capital and as a debt discount to the notes.  We amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrants with the convertible notes, a beneficial conversion option is recorded as a debt discount reflecting the incremental conversion option intrinsic value of the conversion option provided to the holders of the notes. We also amortize this debt discount as interest expense over the life of the notes.  The intrinsic value of each conversion option was calculated as the difference between the effective conversion price and the fair value of the common stock, multiplied by the number of shares into which the note is convertible.

Stock-Based Compensation

Stock-Based Compensation – We account for share-based payments, including grants of stock options to employees, consultants and non-employees; moreover, we issue warrants to the consultants and related parties.  We are required to estimate the fair value of share-based awards and warrants on the date of grant. The value of the award is principally recognized as expense ratably over the requisite service periods. We have estimated the fair value of stock options and warrants as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes model requires the input of certain assumptions.  Changes in the assumptions used in Black-Scholes model can materially affect the fair value estimates. We evaluate the assumptions used to value stock options on an annual basis. The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.

The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by employees.  Upon the adoption of the accounting guidance, we continued to use historical volatility in deriving its expected volatility assumption as allowed under GAAP because we believe that future volatility over the expected term of the stock options is not likely to differ materially from the past. The risk-free interest rate assumption is based on 5-year U.S Treasury zero-coupon rates appropriate for the expected term of the stock options. The expected dividend assumption is based on the history and expectation of dividend payouts.  The fair values generated by the Black-Scholes model may not be indicative of the actual fair values of the equity awards, as we do not consider other factors important to those awards to employees, such as continued employment, periodic vesting requirements and limited transferability.  The amount of stock based compensation expenses is net of an estimated forfeiture rate, which is also based on historical data. For the three month periods ended June 30, 2013 and 2012, stock based compensation expense was approximately $0 and $7,695, respectively, which consisted primarily of stock-based compensation expense related to stock options issued to the employees and recognized under GAAP.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. For the three month periods ended June 30, 2013 and 2012, stock based compensation expense was approximately $0 and $0, respectively which consisted primarily of stock-based compensation expense related to stock options and warrants recognized under GAAP issued to consultants and other non-employees.

The following table shows the components of the Company’s stock based compensation expense for employees, consultants and other non-employees:

	Three months ended June 30,
	2013		2012
Common Stock options issued for compensation	$	-	$	7,695
Common Stock options and warrants issued for services		-		-
Total	$	-	$	7,695

Shipping and Handling Costs

Shipping and Handling Costs - Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of revenues.

Advertising Costs

Advertising Costs - Advertising costs are charged to operations when incurred.  We incurred $133,730 and $18,134 in advertising and promotion costs during the three month periods ended June 30, 2013 and 2012, respectively.

Litigation and Settlement Costs

Litigation and Settlement Costs - Legal costs are expensed as incurred. The Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) accrue the best estimate within a range of loss if there is a loss or, when there is no amount within a range that forms a better estimate, the Company will accrue the minimum amount in the range. The Company was not involved in any legal proceedings, litigation or other legal actions during the three months ended June 30, 2013.

Loss Per Share

Loss Per Share - Basic loss per share, which excludes anti-dilutive securities, is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding for that particular period. In contrast, diluted loss per share considers the potential dilution that could occur from other equity instruments that would increase the total number of outstanding shares of common stock. Such amounts include shares potentially issuable under outstanding options, warrants, convertible preferred stock and convertible notes.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows:

	Three months ended June 30,
	2013			2012
Historical net loss per share:
Numerator
Net loss, as reported		(192,609	)		(218,472	)
Less: Effect of amortization of interest expense on convertible notes		-			-
Net loss attributed to common stockholders (diluted)		(192,609	)		(218,472	)
Denominator
Weighted-average common shares outstanding		23,167,439			19,807,432
Effect of dilutive securities		-			-
Denominator for diluted net loss per share		23,167,439			19,807,432
Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)

The following outstanding options, warrants, convertible preferred shares and convertible note shares were excluded from the computation of basic and diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.

	Three months ended June 30,
	2013		2012
Options to purchase common stock		1,579,921		1,554,530
Warrants to purchase common stock		1,519,534		1,872,034
Common shares issuable upon conversion of convertible preferred stock		937,875		1,364,875
Convertible note shares outstanding		411,985		1,696,331

Restatements and Reclassifications

Restatements and Reclassifications - Certain financial statement items have been reclassified to conform to the current periods’ presentation.  These reclassifications had no impact on previously reported net loss.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance and disclosure requirements for reporting amounts reclassified out of accumulated other comprehensive income. The guidance requires that an entity provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP. The guidance became effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. This standard was adopted in the first quarter of 2013.

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Off Balance Sheet Arrangements and Contractual Obligations

6 Months Ended

Jun. 30, 2013

Off Balance Sheet Arrangements and Contractual Obligations [Abstract]

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

NOTE 10 – OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2013

Intangible Assets [Abstract]

Schedule of carrying values of amortized acquired intangible assets

	June 30, 2013
	Gross		Accumulated Amortization and write off			Net
Patents	$	617,651	$	(246,499	)	$	371,152
Trademarks	$	45,723	$	(9,413	)	$	36,310
	$	663,374	$	(255,913	)	$	407,462

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies [Abstract]

Schedule of inventories

	June 30, 2013
Parts inventory	$	173,813
Work in process		97,785
Finished goods	$	16,926
Total inventories	$	288,523

Schedule of stock based compensation expense

	Three months ended June 30,
	2013		2012
Common Stock options issued for compensation	$	-	$	7,695
Common Stock options and warrants issued for services		-		-
Total	$	-	$	7,695

Schedule of numerator and denominator used in calculation of basic and diluted net loss per share

	Three months ended June 30,
	2013			2012
Historical net loss per share:
Numerator
Net loss, as reported		(192,609	)		(218,472	)
Less: Effect of amortization of interest expense on convertible notes		-			-
Net loss attributed to common stockholders (diluted)		(192,609	)		(218,472	)
Denominator
Weighted-average common shares outstanding		23,167,439			19,807,432
Effect of dilutive securities		-			-
Denominator for diluted net loss per share		23,167,439			19,807,432
Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)

Schedule of antidilutive securities excluded from computation of earnings per share

	Three months ended June 30,
	2013		2012
Options to purchase common stock		1,579,921		1,554,530
Warrants to purchase common stock		1,519,534		1,872,034
Common shares issuable upon conversion of convertible preferred stock		937,875		1,364,875
Convertible note shares outstanding		411,985		1,696,331

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 12, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	OxySure Systems Inc
Entity Central Index Key	0001413797
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2013
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		24,027,346

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Balance Sheet Components (Tables)

6 Months Ended

Jun. 30, 2013

Balance Sheet Components [Abstract]

Summary of components of balance sheet

	June 30,			December 31,
	2013			2012
Cash and cash equivalents:
Cash	$	96,207			13,514
Total cash and cash equivalents	$	96,207		$	13,514
Inventories:
Total inventories	$	288,523		$	221,345
Accounts Receivable, net of allowances	$	80,917		$	18,487
Property and equipment, net:
Machinery and equipment		919,736			919,736
Leasehold improvements		547,856			547,856
Computer equipment and furniture and fixtures		242,268			236,797
Software		10,691			10,691
		1,720,551			1,715,080
Accumulated depreciation and amortization		(1,697,034	)		(1,687,481	)
Total property and equipment, net	$	23,516		$	27,599
Other Assets:
Deferred loan costs, net		199,778			224,751
Security deposits		53,274			53,274
Website development, software, URLs, net		216,847			238,348
	$	469,899		$	516,373
Accounts payable and accrued expenses:
Leasehold Improvement Allowance		-			-
Accounts payable		206,915			70,141
Accrued interest		-			-
Accrued expenses for website and software		143,286			143,286
Stockholder advances		153,983			207,472
Other accrued liabilities		219,966			174,756
Total accounts payable and accrued expenses	$	724,150		$	595,655