Short-Term Notes Payble

12 Months Ended

Dec. 31, 2011

Short-term notes payable [Abstract]

Short-term notes payable

7. Short-term notes payable

Immediately prior to the conversion of debt (the "Recapitalization") in August 2010, the Company had outstanding debt with a principal balance of $6,608 (recorded in the balance sheet net of a discount of $1,509). The outstanding balance included $1,260 of funds borrowed through bridge financing obtained in May, June and July 2010 with the following terms: an interest rate of 8% per annum and a maturity date of December 31, 2010. Warrants to purchase 18,000 shares of Common Stock with an exercise price of $0.06 per share expiring in periods from May 2013 through July 2013 were issued with the bridge financings. The remaining principal balance of $5,348 relates to funds raised in financing transactions in 2008 and 2009. The funds raised in these financings had the following terms: interest at 8% per annum and, at the option of the Company, interest could be paid in cash or in kind. Warrants to purchase 80,154 shares of Common Stock with an exercise price of $0.06 and an expiration date of June 30, 2012 were issued in the financing transactions. Upon execution of each financing a debt discount was recorded. At December 31, 2009, a discount of $2,222 was included in the debt balance. For the years ended December 31, 2010, amortization of the debt discount and deferred financing costs was $1,776. The unamortized discount of $1,509 was charged to paid-in capital in connection with conversion of the associated debt into shares of Series B Preferred Stock (Note 8). The warrants included in the financing transactions were determined to be derivative liabilities (Note 7).

On December 2, 2011, the Company entered into a Note and Warrant Purchase Agreement (the "December 2011 Purchase Agreement") with Philip Sassower, the Company's Chairman and CEO, and other investors (the "December 2011 Investors"). Under the terms of the December 2011 Purchase Agreement, the Company issued unsecured convertible promissory notes in the aggregate amount of $500 (the "December 2011 Notes") to the December 2011 Investors. The December 2011 Notes bear interest at the rate of 10% per annum, and have a maturity date of December 20, 2012. The December 2011 Notes are also convertible at the option of the December 2011 Investors into securities sold in the Company's next equity financing with gross proceeds to the Company in excess of $1. In connection with the issuance of the December 2011 Notes, the Company also issued to the December 2011 Investors warrants to purchase an aggregate of 5,556 shares of the Company's Common Stock at an exercise price of $0.0225 per share. The company ascribed a value of $13 to the warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.39, expected life of three years, expected volatility of 202%, and a dividend yield of 0. The warrant value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the note. The warrant is exercisable for a period of three years. As of December 31, 2011, the fair value of the warrant was $13.

On September 20, 2011, the Company entered into a Note and Warrant Purchase Agreement (the "September 2011 Purchase Agreement") with Phoenix Banner Holdings, LLC (the "September 2011 Investor"), an entity affiliated with Phoenix, the Company's largest stockholder. Under the terms of the September 2011 Purchase Agreement, the Company issued an unsecured convertible promissory note in the amount of $500 (the "September 2011 Note") to the September 2011 Investor. The September 2011 Note bears interest at the rate of 10% per annum, and has a maturity date of September 20, 2012. The September 2011 Note is also convertible at the option of the September 2011 Investor into securities sold in the Company's next equity financing with gross proceeds to the Company in excess of $1. In connection with the issuance of the September 2011 Note, the Company also issued to the September 2011 Investor a warrant to purchase 5,556 shares of the Company's Common Stock at an exercise price of $0.0225 per share. On September 20, 2011 the company ascribed a value of $7 to the warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.42, expected life of three years, expected volatility of 204%, and a dividend yield of 0. The warrant value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the note. The warrant is exercisable for a period of three years. As of December 31, 2011, the fair value of the warrant was $13.

On September 2, 2011 the Company borrowed an aggregate of $100 from Phoenix and an employee of the Company and issued unsecured demand notes to each. These notes are due on demand and bear interest at the rate of 10% per annum.

The Company used the net proceeds from the transaction for working capital and general corporate purposes.

Interest expense associated with the Company's debt for the year ended December 31, 2011 and 2010, was $27 and $2,039, respectively, of which $24 and $1,974 was related party expense. Amortization of debt discount and deferred financing costs included in interest expense for the year ended December 31, 2011 and 2010, was $3 and $1,776, respectively, of which $3 and $1,719 was related party expense.

Material commitments:

The Company had the following commitments at December 31, 2011:

Contractual obligations	Payments due by period
	Total	2012	2013	2014	2015	2016	Thereafter
Short-term note payable (1)	1,100	1,100	-	-	-	-	-

1. The Company issued demand notes in September 2011 in the amount of $100, and convertible notes in September and December 2011 in the amount of $500 and $500, respectively. The notes bear interest at the rate of 10% per annum. The Convertible notes are due in September and December 2012.