Equity

9 Months Ended

Sep. 30, 2011

Equity [Abstract]

Equity

7.

Equity

The Company has granted stock options under its 1999 Option Plan which expired in April of 2009 (options outstanding under that plan are not effected by its expiration) and has also granted options to employees, directors and consultants pursuant to individual plans.

The Company's Board of Directors adopted the 2009 Stock Compensation Plan on July 1, 2009, reserving 7,000 shares of Common Stock of the Company for issuance thereunder. As of September 30, 2011, there are 2,412 options outstanding pursuant to this plan.

The Company's Board of Directors adopted the 2011 Stock Compensation Plan on January 28, 2011, reserving 50,000 shares of Common Stock of the Company for issuance thereunder. As of September 30, 2011, there are 39,888 options outstanding pursuant to this plan.

Share-based compensation expense is based on the estimated grant date fair value of the portion of share-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the Black-Scholes option pricing model. Forfeitures of share-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated average forfeiture rate for the nine months ended September 30, 2011 and 2010, was approximately 8.84% and 9.61%, respectively, based on historical data.

Valuation and Expense Information:

The weighted-average fair value of stock-based compensation is based on the single option valuation approach. Forfeitures are estimated and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized using the accrual method over the vesting period of the options. The fair value calculations are based on the following assumptions:

	Three and Six Months Ended	Three and Six Months Ended
	September 30, 2011	September 30, 2010
Risk free interest rate	0.62% - 5.11%	1.12% - 5.11%
Expected life (years)	2.82 - 7.00	2.82 - 7.00
Expected volatility	91.99% - 147.41%	91.99% - 148.80%
Expected dividends	None	None

The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three and nine months ended September 30, 2011 and 2010. The Company granted 15,725 and 40,221 stock options, respectively, during the three and nine months ended September 30, 2011 and no stock options were exercised. The Company granted 1,300 and 2,550 stock options during the three and nine months ended September 30, 2010, respectively, and no stock options were exercised.

	Three Months Ended		Six months Ended
	September 30, 2011	September 30, 2010	September 30, 2011	September 30, 2010
Research and development	$ 78	$ 28	$ 284	$ 10
Sales and marketing	37	44	128	46
General and administrative	70	65	129	17
Director options	22	20	72	-
Stock-based compensation expense	$ 207	$ 157	$ 613	$ 73

A summary of option activity under the Company’s plans as of September 30, 2011 is as follows:

Options	September 30, 2011
	Shares (000)	Weighted Average Exercise Price	Weighted average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1,	10,028	$0.33	-	$ -
Granted	40,221	$0.05	-	$ -
Exercised	-	-	-	$ -
Forfeited or expired	(3,020)	$0.25	-	$ -
Outstanding at September 30	47,229	$0.10	5.85	$ -
Vested and expected to vest at September 30	47,229	$0.10	5.85	$ -
Exercisable at September 30	11,458	$0.25	3.62	$ -

The following tables summarize significant ranges of outstanding and exercisable options as of September 30, 2011 and 2010:

Range of Exercise Prices	As of September 30, 2011
	Options Outstanding			Options Exercisable
	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Outstanding	Weighted Average Exercise Price
$ 0.07 - $ 0.50	44,990	6.8	$ 0.06	9,219	$ 0.12
0.51 - 1.00	2,176	1.1	$ 0.73	2,176	$ 0.73
1.01 - 2.00	63	0.6	$ 1.75	63	$ 1.75
	47,229	5.9	$ 0.10	11,458	$ 0.25

Range of Exercise Prices	As of September 30, 2010
	Options Outstanding			Options Exercisable
	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Outstanding	Weighted Average Exercise Price
$ 0.07 - $ 0.50	6,665	4.6	$ 0.17	4,717	$ 0.19
0.51 - 1.00	2,941	3.0	$ 0.72	2,940	$ 0.72
1.01 - 2.00	73	2.5	$ 1.66	73	$ 1.66
3.01 - 7.50	15	0.7	$ 3.56	15	$ 3.56
	9694	4.1	$ 0.42	7,745	$ 0.42

A summary of the status of the Company’s non-vested shares as of September 30, 2011 is as follows:

Nonvested Shares	Shares	Weighted Average Grant-Date FairValue
Non-vested at January 1, 2011	1,719	$ 0.06
Granted	40,221	$ 0.05
Forfeited	(1,378)	$ 0.07
Vested	(4,791)	$ 0.06
Non-vested at September 30, 2011	35,771	$ 0.04

As of September 30, 2011, there was $668 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans. The unrecognized compensation expense is expected to be realized over a weighted average period of 2.08 years.

Preferred Shares

Series A-1

In May 2008, the Company issued an aggregate of 1,040 shares of the Company’s Series A Cumulative Convertible Preferred Stock in exchange for certain debt. The Series A Cumulative Convertible Preferred.

Stock was subsequently exchanged in October 2008 for an equivalent number of shares of Series A-1 Cumulative Convertible Preferred Stock (the “Series A-1 Preferred Stock”). As of September 30, 2011, there are 863 shares of Series A-1 Preferred Stock outstanding. The shares of Series A-1 Preferred Stock carry an eight percent (8%) annual dividend, payable quarterly in arrears in cash or in additional shares of Series A-1 Preferred Stock, have a liquidation preference over Common Stock of one dollar ($1.00) per share and are convertible into shares of Common Stock at the conversion price of fourteen cents ($0.14) per share. The Company issued 17 and 50 shares of Series A-1 Preferred Stock, respectively, in payment of dividends for the three and nine months ended September 30, 2011. If the outstanding shares of Series A-1 Preferred Stock were converted in their entirety as of September 30, 2011, the Company would issue 6,164 shares of Common Stock. The shares of Series A-1 Preferred Stock are convertible any time. As of September 30, 2011, the Company has accrued dividends on the preferred shares of $219.

Series B

On August 5, 2010, the Company completed the conversion of all of the Company’s outstanding indebtedness and issued 6,608 shares of Series B Participating Convertible Preferred Stock (the “Series B Preferred Stock”) in accordance with an executed Exchange Agreement entered into with Phoenix Venture Fund LLC and certain other holders of the Company’s indebtedness (the “Recapitalization”). In accordance with the executed Series B Preferred Stock Purchase Agreement the Company issued 1,440 shares of Series B Preferred Stock for proceeds of $1,440, net of expenses of $437 (the “Series B Financing”). In addition, the Company paid approximately $143 in expenses to a third party in connection with the financing. The expenses were recorded as a charge to additional paid in capital. The proceeds were used for working capital and general corporate purposes, in each case in the ordinary course of business, and to pay fees and expenses associated with the Recapitalization and Series B Financing.

The shares of Series B Preferred Stock carry a ten percent (10%) annual dividend, payable quarterly in arrears in cash or in additional shares of Series B Preferred Stock, and have a liquidation preference over shares of Series A-1 Preferred Stock and Common Stock of $1.50 per share. The shares of Series B Preferred Stock were initially convertible into shares of Common Stock at an initial conversion price of six cents ($0.06) per share. However, the Company issued additional preferred stock, the Series C Participating Convertible Preferred Stock (the “Series C Preferred Stock”), at a price less than the then current conversion price of $0.06, which resulted in a downward adjustment in the conversion price of the Series B Preferred Stock to $0.0433 per share and an increase in the number of shares of Common Stock that would be issued upon conversion of the outstanding shares of Series B Preferred Stock. The shares of Series B Preferred Stock are convertible at any time.

The conversion feature was determined to be a derivative liability in the amount of $2,000 of which $1,498 was attributable to related parties and $502 to the other creditors. Due to the decline in the price of the Company’s Common Stock and the issuance of the Series C Preferred Stock, the fair value of the embedded conversion feature on the Series B Preferred Stock was reduced to approximately $130 at December 31, 2010. In March 2011, the Company amended its Amended and Restated Certificate of Designation for its Series B Preferred Stock, revising among other things the terms of conversion, thereby eliminating the accounting requirement to classify the conversion feature on the Series B Preferred Stock as a derivative liability. The Company issued 222 and 643 shares of Series B Preferred Stock, respectively, in payment of dividends for the three and nine months ended September 30, 2011. If the outstanding Series B Preferred Stock is converted in its entirety at September 30, 2011, the Company would issue 208,384 shares of Common Stock.

Series C

On December 31, 2010, the Company completed the sale of 2,211 shares of Series C Preferred Stock through a Securities Purchase Agreement with Phoenix Venture Fund LLC and certain other investors, which sale provided proceeds to the Company of $2,211 net of approximately $422 in expenses to third parties in connection with the financing. The expenses were recorded as a charge to additional paid-in capital. The proceeds are being used for working capital and general corporate purposes, in each case in the ordinary course of business, and to pay fees and expenses associated with the sale of the Series C Preferred Stock.

The shares of Series C Preferred Stock carry a ten percent (10%) annual dividend, payable quarterly in arrears in cash or in additional Series C Preferred Stock, and have liquidation preference that is senior to all other shares of the Company’s capital stock, pursuant to which holders of shares of Series C Preferred Stock will receive liquidating distributions in the amount of $1.50 per share plus any accrued dividends. The shares of Series C Preferred Stock are convertible into Common Stock at any time at an initial conversion price of $0.0225 per share, subject to adjustment for stock dividends, splits, combinations and similar events and, with certain exceptions, the issuance of additional securities at a purchase price less than the then current conversion price of the Series C Preferred Stock. On December 31, 2010, the Series C Preferred Stock’s conversion feature was determined to be a derivative liability in the amount of $179, of which $113 was attributable to related parties and $66 to the other holders. In March 2011, the Company amended the Certificate of Designation for its Series C Preferred Stock, revising among other things the terms of conversion, eliminating the accounting requirement to classify the conversion feature on Series C Preferred Stock as a derivative liability.

After receipt of the liquidation preference, the shares of Series C Preferred Stock and Series B Preferred Stock will participate pro rata on an as-converted basis with the shares of Common Stock in any remaining liquidation proceeds (after payment of the liquidation preference on the Series C Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock).

On March 31, 2011, the Company amended its Amended and Restated Certificate of Designation for its Series B Preferred Stock and its Certificate of Designation for its Series C Preferred Stock to modify the anti-dilution provisions. Under the amendments, in the event additional stock is issued at a price lower than the conversion price then in effect, the new conversion price of the Series B Preferred Stock or Series C Preferred Stock cannot be (A) lower than the average closing market price for the Common Stock for the twenty (20) trading days prior to the closing date of a transaction requiring an adjustment in the conversion price (the “Market .Price”) or (B) greater than the conversion price then in effect. The amendments were approved by the Company’s Board of and the necessary majorities of the Company’s Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, and were filed with the Delaware Secretary of State on March 31, 2011. As a result of the amendments, the Company reclassified $362 from derivative liabilities to equity on March 31, 2011 (Note 5) and recorded a beneficial conversion feature of $64 related to the intrinsic value of the conversion feature of the dividends issued on March 31, 2011.

On March 6, 2011, and again on August 11, 2011, the Company issued 97.5 and 97.5 shares of its Series C Preferred Stock and warrants to purchase 4,333 and 4,333 shares of Common Stock, respectively, to its Acting President as part of a professional service agreement. On August 10, 2011, the Company issued 36.5shares of its Series C Preferred Stock and warrants to purchase 1,624 shares of Common Stock to its former President as part of a separation agreement. The shares of Series C Preferred Stock and warrants are convertible into Common Stock under the same terms discussed above. The Company recorded a beneficial conversion feature of $15 related to the intrinsic value of conversion feature of the shares of Series C Preferred Stock discussed above.

On March 31, 2011, the Company sold an additional 800 shares of Series C Preferred Stock for proceeds of $800, net of approximately $125 in expenses, of which $50 went to SG Phoenix, LLC in payment of an administrative fees and $75 in expenses to third parties in connection with the financing. The Company recorded a beneficial conversion feature of $800 related to the intrinsic value of conversion feature of the shares of Series C Preferred Stock. As of September 30, 2011, there are 3,460 shares of Series C Preferred Stock outstanding. The Company issued 84 and 218 shares of Series C Preferred Stock, respectively, in payment of dividends for the three and nine months ended September 30, 2011. If the outstanding shares of Series C Preferred Stock were converted in their entirety, the Company would issue 153,761 shares of Common Stock. The Company recorded a beneficial conversion feature of $13 related to the intrinsic value of the conversion feature of the dividends issued on September 30, 2011.

Warrants:

Series C Warrants

Each investor who purchased shares of Series C Preferred Stock in the financing transactions which closed on December 31, 2010 and March 31, 2011 received a warrant to purchase a number of shares of Common Stock equal to the aggregate number of shares of Series C Preferred Stock purchased by the investor divided by 0.0225. The Company issued 98,244 and 35,555 warrants upon closing the December 31, 2010 and March 31, 2011 financing transactions, respectively. Each warrant issued in connection with the Series C Financing has an exercise price of $0.0225 per share and is exercisable in whole or in part, including by means of cashless exercise, for a period of three years from the date of issuance. If the outstanding Series C Warrants are exercised for cash in their entirety, the Company would issue 133,799 shares of Common Stock.

Other Warrants

At September 30, 2011, 55,551 shares of Common Stock were reserved for issuance upon exercise of outstanding warrants, excluding the 133,799 shares of Common Stock issuable upon exercise of the Series C Warrants described above.

A summary of the warrants issued are as follows:

	September 30, 2011		December 31, 2010
	Warrants	Weighted Average Exercise Price	Warrants	Weighted Average Exercise Price
Outstanding at beginning of period	135,131	$0.0274	6,482	$0.0433
Issued	54,179	$0.0064	128,649	$0.0266
Exercised	-	-	-	-
Forfeited	-	-	-	-
Expired	-	-	-	-
Outstanding at end of period	189,310	$0.0064	135,131	$0.0274
Exercisable at end of period	189,310	$0.0260	135,131	$0.0274

A summary of the status of the warrants outstanding as of September 30, 2011 is as follows:

Number of Warrants	September 30, 2011
	Weighted Average Remaining Life	Weighted Average Exercise Price per share	Shares Exercisable	Weighted Average Exercise Price
31,974	1.57	$ 0.0433	31,974
157,336	2.32	$0.0225	157,336
189,310	2.19	$0.0260	189,310	$0.0260

Restricted Share Grants

In connection with the Recapitalization, the Company issued restricted shares to employees in exchange for reductions in their respective salaries. The number of shares issued was calculated based on the amount of the annual salary reduction divided by $0.06 per share. The agreement allowed the Company to hold back a sufficient number of shares that had an aggregate fair market value equal to the withholding tax obligation associated with the recipient’s tax liability for the shares. Fifty percent of the shares vested on December 31, 2010 and the remaining 50% vested on September 30, 2011, subject to continued employment through such vesting dates. As of September 30, 2011, the Company has issued 360 restricted shares of Common Stock.