Stockholders' Equity

3 Months Ended

Mar. 31, 2012

Stockholders' Equity [Abstract]

Stockholders' 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 March 31, 2012, there are 2,218 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 March 31, 2012, there are 43,617 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 three months ended March 31, 2012 and 2011, was approximately 9.59% and 24%, 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 Months Ended March 31, 2012	Three Months Ended March 31, 2011
Risk free interest rate	0.62% - 5.11%	1.12% - 5.11%
Expected term (years)	2.82 - 7.00	2.82 - 7.00
Expected volatility	93.63% - 147.4%	91.99% - 147.41%
Expected dividends	None	None

The Company did not grant any stock options during the three months ended March 31, 2012. During the three months ended March 31, 2012, a total of 132,163 stock options were exercised for $9 in cash at a weighted average price of $0.06 per share. The Company granted 24,496 stock options during the three months ended March 31, 2011, and no stock options were exercised. The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three months ended March 31, 2012 and 2011.

	Three Months Ended March 31,
	2012	2011
Research and development	$ 70	$ 90
Sales and marketing	21	44
General and administrative	51	52
Director	9	-
Stock-based compensation expense	$ 151	$ 186

A summary of option activity under the Company's plans as of March 31, 2012 is as follows:

Options	March 31, 2012
	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1,	51,353	$0.09		$ 4,450
Granted	-	-		$ -
Exercised	(132)	$0.07		$ 2
Forfeited or expired	(983)	$0.06		$ 64
Outstanding at March 31,	50,238	$0.09	5.47	$ 4,377
Vested and expected to vest at March 31,	50,238	$0.09	5.47	$ 4,377
Exercisable at March 31,	18,510	$0.16	4.31	$ 2,942

The following tables summarize significant ranges of outstanding and exercisable options as of March 31, 2012:

Range of Exercise Prices	As of March 31, 2012
	Options Outstanding			Options Exercisables
	Number Outstanding	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price	Number Outstanding	Weighted Average Exercise Price
$0.07 - $0.50	48,275	5.67	$ 0.06	16,547	$ 0.08
0.51 - 1.00	1,901	0.72	$ 0.75	1,901	$ 0.75
1.01 - 2.00	62	0.19	$ 1.75	62	$ 1.75
	50,238	5.47	$ 0.09	18,510	$ 0.16

A summary of the status of the Company's non-vested shares as of March 31, 2012, is as follows:

Non-vested Shares	Shares	Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2012	36,814	$ 0.05
Granted	-	$ 0.00
Exercised	(132)	$ 0.07
Forfeited	(983)	$ 0.06
Vested	(3,970)	$ 0.05
Non-vested at March 31, 2011	31,729	$ 0.05

As of March 31, 2012, there was $401 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 2.8 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"). During 2009, 146 Series A-1 Preferred Shares were converted into 1,005 shares of the Company's Common Stock. As of March 31, 2012, there are 898 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 shares of Series A-1 Preferred Stock are convertible any time. The Company issued 18 shares of Series A-1 Preferred Stock in payment of dividends for the three months ended March 31, 2012. If the outstanding shares of Series A-1 Preferred Stock were converted in their entirety as of March 31, 2012, the Company would issue 6,412 shares of Common Stock.

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 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. In January and March 2012, a total of 140 shares of Series B Preferred Stock were converted into 3,232 shares of the Company's Common Stock. The Company issued 227 shares of Series B Preferred Stock in payment of dividends for the three months ended March 31, 2012. As of March 31, 2012, there are 9,337 shares of Series B Preferred Stock outstanding. If the outstanding Series B Preferred Stock is converted in its entirety at March 31, 2012, the Company would issue 215,642 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 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 4) and recorded a beneficial conversion feature of $3,501 related to the intrinsic value of the conversion feature on March 31, 2011.

On March 6, 2011, the Company issued 97 shares of its Series C Preferred Stock and warrants to purchase 4,311 shares of Common Stock to its Acting President as part of a professional service agreement. The shares of Series C Preferred Stock and warrants are convertible into Common Stock under the same terms 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 $110 in expenses to third parties in connection with the financing.

On March 9, 2012, the Company issue 278 shares of Series C Preferred Stock valued at $417 in settlement of the indemnification claim brought by Phoenix Venture Fund LLC, resulting from the settlement of a 16b claim in January 2012 brought by a Company shareholder against Phoenix Venture Fund LLC, certain affiliates and the Company as a nominal defendant. The Company booked a $418 accretion amount for the beneficial conversion feature on the 278 shares of Series C Preferred Stock at March 31, 2012.

The Company issued 89 shares of Series C Preferred Stock in payment of dividends for the three months ended March 31, 2012. As of March 31, 2012, there are 3,914 shares of Series C Preferred Stock outstanding. If the outstanding shares of Series C Preferred Stock were converted in their entirety, the Company would issue 173,952 shares of Common Stock.

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. 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 February and March 2012, 28,678 warrants were exercised by holders of the Series C Preferred Stock warrants. Of these shares exercised, 6,222 were exercised for cash for which the Company received $140 and 22,456 were exercised on a cashless basis. The Company issued 23,928 Shares of Common Stock related to these exercises. If the remaining outstanding Series C Warrants are exercised for cash in their entirety, the Company would issue 122,060 shares of Common Stock.

Other Warrants

In February and March 2012, 6,484 warrants were exercised by the holders of the warrants other than those described above. Of these shares exercised, 1,217 were exercised for cash for which the Company received $73 and 5,267 were exercised on a cashless basis. The Company issued 3,696 Shares of Common Stock related to these exercises. At March 31, 2012, 25,421 shares of Common Stock were reserved for issuance upon exercise of outstanding warrants, excluding the 122,060 shares of Common Stock issuable upon exercise of the Series C Warrants described above.

A summary of the warrants issued are as follows:

	March 31, 2012		December 31, 2011
	Warrants	Weighted Average Exercise Price	Warrants	Weighted Average Exercise Price
Outstanding at beginning of period	182,644	$ 0.0261	135,131	$ 0.0274
Issued			59,735	$ 0.0064
Exercised	(35,162)	$ 0.0067	(12,222)	$ 0.0225
Forfeited	-	-	-	-
Expired	-	-	-	-
Outstanding at end of period	147,482	$ 0.0263	182,644	$ 0.0261
Exercisable at end of period	147,482	$ 0.0263	182,644	$ 0.0261

A summary of the status of the warrants outstanding as of March 31, 2012 is as follows:

Number of Warrants	March 31, 2012
	Weighted Average Remaining Life	Weighted Average Exercise Price per share	Shares Exercisable	Weighted Average Exercise Price
17,073	1.03	$ 0.0433	17,073
130,408	1.78	$ 0.0225	130,408
147,482	1.74	$ 0.0263	147,482	$ 0.0249

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. Fifty percent of the shares vested on December 31, 2010, and the remaining 50% are vested on June 30, 2011, subject to continued employment through such vesting dates. The Company has recognized $43 in expense associated with 452 restricted shares granted. As of March 31, 2012, the Company has issued 360 of the restricted shares granted.