Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity [Abstract]

Stockholders' Equity

10. Stockholders' equity

Common stock options:

At December 31, 2011, the Company has two stock-based employee compensation plans, the 2009 Stock Compensation Plan, and the 2011 Stock Compensation Plan. The Company may also grants options to employees, directors and consultants outside of the 2009 and 2011 Stock Compensation Plans under individual plans.

The 2009 Stock Compensation Plan was adopted by the Board of Directors on July 1, 2009. Non-qualified options under the 2009 Stock Compensation Plan can be granted to employees, officers, and consultants of the Company. There were 7,000 shares of Common Stock authorized for issuance under the 2009 Stock Compensation Plan. The options have a term of three to seven years and can vest immediately or quarterly over three years, as defined. As of December 31, 2011, 2,379 plan options were outstanding, and 2,158 plan options were exercisable with a weighted average exercise price of $0.0995 per share.

The 2011 Stock Compensation Plan was adopted by the Board of Directors on January 28, 2011. Incentive and non-qualified options under the 2011 Stock Compensation Plan can be granted to employees, officers, and consultants of the Company. There were 50,000 shares of Common Stock authorized for issuance under the 2011 Stock Compensation Plan. The options have a term seven years and can vest immediately or quarterly over three years, as defined. As of December 31, 2011, 44,571 plan options were outstanding, and 8,011 plan options were exercisable with a weighted average exercise price of $0.0546 per share.

In April 1999, the Company adopted and, in June 1999, the stockholders approved, the 1999 Option Plan. Incentive and non-qualified options under the 1999 Option Plan were granted to employees, officers, and consultants of the Company. The 1999 Option Plan expired in April 2009 (options outstanding under that plan are not affected by its expiration). There were 4,000 shares of Common Stock authorized for issuance under the 1999 Option Plan. The options had a seven year term and generally vested quarterly over three years. As of December 31, 2011, 924 plan options were outstanding and 924 plan options were exercisable with a weighted average exercise price of $0.558 per share.

The Company has issued options under individual plans to its employees and directors. The individual plan options generally vest over four years or pro rata quarterly over three years. Non-plan options are generally exercisable over a period not to exceed seven years. As of December 31, 2011, 3,479 non-plan options were outstanding and 3,446 non-plan options were exercisable with a weighted average exercise price of $0.463 per share.

Share-based payment:

The cash flows from tax benefits for deductions in excess of the compensation costs recognized for share-based payment awards would be classified as financing cash flows. Due to the Company's loss position, there was no such tax benefits during the year ended December 31, 2011.

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:

	Year Ended December 31, 2011	Year Ended December 31, 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	93.63% - 147.4%	91.99% - 145.0%
Expected dividends	None	None
Estimated average forfeiture rate	11%	24%

The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the years ended December 31, 2011 and 2010. There were no stock option exercises during the year ended December 31, 2011 or 2010.

	Year Ended December 31, 2011	Year Ended December 31, 2010
Research and development	$                   347	$                     21
Sales and marketing	161	52
General and administrative	204	20
Director options	92	-
Stock-based compensation expense included in operating expenses	$                   804	$                     93

The summary activity under the Company's 2009 Stock Compensation Plan, the 1999 Option Plan and Individual Plans is as follows:

	December 31, 2011				December 31, 2010
	Shares	Weighted Average Exercise Price	Average Intrinsic Value	Weighted Average Remaining Contractual Life	Shares	Weighted Average Exercise Price	Average Intrinsic Value	Weighted Average Remaining Contractual Life
Outstanding at beginning of period	10,028	$0.33			10,231	$0.34
Granted	44,971	$0.05			2,550	$0.08
Exercised	-	$0.00			-	$0.00
Forfeited/ Cancelled	(3,645)	$0.27			(2,753)	$0.15
Outstanding at period end	51,353	$0.09		3.2	10,028	$0.33		3.2
Options vested and exercisable at period end	14,539	$0.19		2.6	8,309	$0.38		2.6
Weighted average grant-date fair value of options granted during the period	$0.05				$0.08

The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2011:

Range of Exercise Prices	Options Outstanding			Options Exercisable
	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Outstanding	Weighted Average Exercise Price
$ 0.00 - $ 0.50	49,390	5.8	$ 0.15	12,576	$ 0.10
$ 0.51 - $ 1.00	1,900	1.0	$ 0.72	1,900	$ 0.75
$ 1.01 - $ 2.00	63	0.4	$ 1.66	63	$ 1.75
	51,353			14,539

A summary of the status of the Company's non-vested shares as of December 31, 2011 is as follows:

Nonvested Shares	Shares	Weighted Average Grant-Date FairValue
Non-vested at January 1, 2010	1,719	$ 0.06
Granted	44,971	$ 0.05
Forfeited	(3,645)	$ 0.18
Vested	(6,231)	$ 0.20
Non-vested	36,814	$ 0.05

As of December 31, 2011, there was $578 of total unrecognized compensation cost related to non-vested share-based compensation arrangements.The unrecognized compensation cost is expected to be recognized over a weighted average period of 3.0 years.

The Company expects to make additional option grants in future years. The options issued to employees and directors will be subject to the same provisions outlined above, which may have a material impact on the Company's financial statements.

As of December 31, 2011, 51,353 shares of Common Stock were reserved for issuance upon exercise of outstanding options.

Preferred Shares:

Series A-1

In connection with the closing of the June 2008 Financing Transaction, the Company also entered into a Securities Purchase Agreement (the "Purchase Agreement") and a Registration Rights Agreement (the "Registration Rights Agreement") each dated as of June 5, 2008. Under the Purchase Agreement, in exchange for the cancellation of $995 in principal amount and $45 of interest accrued thereon of the Company's aggregate outstanding $2,071 in existing debt and interest accrued thereon through May 31, 2008, the Company issued to the holders of such debt an aggregate of 1,040 shares of the Company's Series A Cumulative Convertible Preferred Stock, which shares were subsequently exchanged in October 2008 for an equivalent number of shares of Series A-1 Cumulative Convertible Preferred Stock (the "Series A-1 Preferred Shares"). During 2009, 146 Series A-1 Preferred Shares were converted into 1,005 shares of the Company's Common Stock. As of December 31, 2011, there are 880 Series A-1 Preferred Shares outstanding. The Series A-1 Preferred Shares carry an eight percent (8%) annual dividend, payable quarterly in arrears in cash or in additional Series A-1 Preferred Shares 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. If the outstanding Series A-1 Preferred Shares are converted in their entirety, the Company would issue 6,286 shares of Common Stock. The Series A-1 Preferred Shares are convertible any time after June 30, 2008. As of December 31, 2011, the Company has accrued dividends on the preferred shares of $237.

Series B

On August 5, 2010, the Company completed the conversion of all of the Company's outstanding indebtedness into 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 and sold approximately 1.44 million shares of Series B Preferred Stock in accordance with an executed Series B Preferred Stock Purchase Agreement (the "Purchase Agreement"). The Company issued approximately 6,608 shares of Series B Preferred Stock in exchange for all of the Company's outstanding secured indebtedness and issued 1,440 shares of Series B Preferred Stock for proceeds of $1,440, net of expenses of $437. 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 are to be 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.

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 of $1.50 per share over shares of Series A-1 Preferred Stock and of Common Stock. The shares of Series B Preferred Stock were initially convertible into shares of Common Stock at a conversion price of six cents ($0.06) per share. However, as a result of the Company's issuance of the Series C Participating Convertible Preferred Stock (the "Series C Preferred Stock") at a price less than the then current Series B Preferred Stock conversion price of $0.06, the conversion price of the Series B Preferred Stock was adjusted downwards to $0.0433 per share. This adjustment results in 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 870 shares of Series B Preferred Stock in payment of dividends for the year ended December 31, 2011. If the outstanding Series B Preferred Stock is converted in its entirety at December 31, 2011, the Company would issue 213,636 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 Purchase Agreement with Phoenix Venture Fund LLC and certain other investors for proceeds of $2,211 net of approximately $422 in expenses to third parties in connection with the financing. The Series C Preferred Stock is senior to the outstanding Series B Preferred Stock and Series A-1 Preferred Stock and all shares of Common Stock with respect to dividend rights and rights on liquidation, winding-up and dissolution in accordance with its purchase agreement. The expenses were recorded as a charge to additional paid in capital. The proceeds are to be 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 Series C Preferred Stock carries a ten percent (10%) annual dividend, payable quarterly in arrears in cash or in additional Series C Preferred Stock. In preference to all other shares of the Company's capital stock, The Series C Preferred Stock will receive liquidating distributions in the amount of $1.50 per share plus any accrued dividends. The Series C Preferred Stock is convertible into Common Stock at any time at the option of the holder 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. The Series C Preferred Stock is convertible any time after December 31, 2010. 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 is attributable to related parties and $66 to the other holders.

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 Directors 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 10), 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 President as part of a professional service agreement. On August 10, 2011, the Company issued 36 shares 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 $134 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 $121 in expenses, of which $50 went to SG Phoenix, LLC in payment of an administrative fee and $71 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 the conversion feature of the shares of Series C Preferred Stock. As of December 31, 2011, there were 3,547 shares of Series C Preferred Stock outstanding. The Company issued 305 shares of Series C Preferred Stock in payment of dividends for the year ended December 31, 2011. If the outstanding Series C Preferred Stock is converted in its entirety, the Company would issue 157,644 shares of Common Stock.

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).

Warrants:

Series C Warrants

Each investor 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. 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.

In August 2011, an investor exercised on a cashless basis, 3,333 warrants in exchange for 1,629 shares of the Company's common stock. In December 2011, a related party exercised, on a cashless basis, 8,889 warrants in exchange for 5,239 shares of the Company's Common Stock.

If the outstanding Series C Warrants are executed for cash in their entirety, the Company would issue 132,601 shares of Common Stock.

Other Warrants

At December 31, 2011, 182,644 shares of Common Stock were reserved for issuance upon exercise of outstanding warrants. Including the 135,201 shares of Common Stock issuable upon exercise of the Series C Warrants described above.

A summary of the warrants issued are as follows:

	December 31, 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	59,735	$0.0064	128,649	$0.0266
Exercised	(12,222)	$ 0.0225	-	-
Forfeited	-	-	-	-
Expired	-	-	-	-
Outstanding at end of period	182,644	$0.0261	135,131	$0.0274
Exercisable at end of period	182,644	$0.0261	135,131	$0.0274

A summary of the status of the warrants outstanding as of December 31, 2011 is as follows:

Number of Warrants	December 31, 2011
	Weighted Average Remaining Life	Weighted Average Exercise Price per share	Shares Exercisable	Weighted Average Exercise Price
31,974	1.31	$ 0.0433	31,974	$ 0.0433
150,670	2.11	$ 0.0225	150,670	$0.0225
182,644	1.97	$0.0261	182,644	$0.0261

Restricted Share Grants

As part of the Recapitalization in 2010, the Company issued restricted shares to four employees in exchange for reductions in their respective salaries payable in cash. The number of shares issued was calculated based on the amount of the annual salary reduction divided by $0.06 per share. Fifty percent of the shares vested on December 31, 2010 and the remaining 50% vested on June 30, 2011.