Short-term notes payable

6 Months Ended

Jun. 30, 2012

Short-term notes payable [Abstract]

Short-term notes payable

4. Short-term notes payable

On April 23, 2012, the Company entered into a Note and Warrant Purchase Agreement (the "April 2012 Purchase Agreement") with certain investors (the "April 2012 Investors"). Under the terms of the April 2012 Purchase Agreement, the Company received loans in the aggregate amount of $1,000,000 from the April 2012 Investors in exchange for the Company's issuance to each of the April 2012 Investors an unsecured convertible promissory note equal to the principal amount of such April 2012 Investor's loan to the Company (the "April 2012 Notes"). The April 2012 Notes bear interest at the rate of 10% per annum, and have a maturity date of April 22, 2013. The April 2012 Notes automatically convert into securities sold in the Company's next equity financing. In connection with the issuance of the April 2012 Notes to the April 2012 Investors, the Company also issued to the April 2012 Investors warrants to purchase an aggregate of 5,000,000 shares of the Company's Common Stock at an exercise price of $0.05 per share (the "April 2012 Warrants"). The company ascribed a value of $47 to the April 2012 Warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.40, expected life of three years, expected volatility of 213%, and a dividend yield of 0. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the April 2012 Notes. The April 2012 Warrants are exercisable for a period of three years. The Company is using the funds received from the April 2012 Investors for working capital and general corporate purposes in the ordinary course of business, and to pay fees and expenses in connection with the Company's entry into the April 2012 Purchase Agreement. As of June 30, 2012, the fair value of the warrants was $47. In connection with the April 2012 Purchase Agreement, the Company issued an aggregate of 349 warrants to two consultants on the financing at an exercise price of $0.05 per share. The Company ascribed a value of $2 to the warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.40, expected life of three years, expected volatility of 213%, and a dividend yield of 0. The warrant value was recorded as a professional service fee and as a derivative liability. The warrants are exercisable for a period of three years. As of June 30, 2012, the fair value of the warrants was $3.

On February 17, 2012 and March 5, 2012, the Company borrowed $25 and $100, respectively, from Phoenix, a related party, and issued unsecured demand notes. These notes are due on demand and bear interest at the rate of 10% per annum. The Company used the net proceeds from the demand notes for working capital and general corporate purposes.

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 $100. 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 "December 2011 Warrants"). The company ascribed a value of $13 to the December 2011 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. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the December 2011 Notes. The December 2011 Warrants are exercisable for a period of three years. In February 2012, December 2011 Warrants for 5,000 shares were exercised, 4,889 in a cashless exercise and 111 for cash. The Company issued 4,043 shares of common stock related to the exercise and received $2 in cash. As of June 30, 2012, the fair value of the remaining 556 December 2011 Warrants was $2. The Company used the net proceeds from the December Notes for working capital and general corporate purposes.

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 $100. 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 (the "September 2011 Warrant"). On September 20, 2011, the Company ascribed a value of $7 to the September 2011 Warrant 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. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the September 2011 Note. The September 2011 Warrant is exercisable for a period of three years. As of June 30, 2012, the fair value of the September 2011 Warrant was $13. The Company used the net proceeds from the September Notes for working capital and general corporate purposes.

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 demand notes for working capital and general corporate purposes.

Interest expense associated with the Company's debt for the three months ended June 30, 2012 and 2011, was $51 and $1, respectively, of which $31 and $0 was related party expense. Interest expense associated with the Company's debt for the six months ended June 30, 2012 and 2011, was $81 and $1, respectively, of which $58 and $0 was related party expense. Amortization of debt discount and deferred financing costs for the three months ended June 30, 2012, and 2011, was $12 and $0, respectively, of which $4 and $0 was related party expense. Amortization of debt discount and deferred financing costs included in interest expense for the six months ended June 30, 2012, and 2011, was $17 and $0, respectively, of which $8 and $0 was related party expense.

Material commitments:

The Company had the following commitments at June 30, 2012:

Contractual obligations	Payments due by period -
	Total	2012	2013	2014	2015	2016	Thereafter
Short-term note payable	2,225	1,225	1,000	-	-	-	-

The Company issued demand notes in September 2011 in the amount of $100, and in February and March 2012 in the amounts of $25 and $100, respectively. The Company issued convertible notes in September and December 2011 in the amount of $500 and $500, respectively, and convertible notes in April 2012 in the amount of $1,000. The notes bear interest at the rate of 10% per annum. The Convertible notes are due in September 2012 and December 2012, and April of 2013, respectively.