Equity

6 Months Ended

Jun. 30, 2014

Stockholders' Equity [Abstract]

Stockholders' Equity

7. Equity

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 valuation 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 June 30, 2014 and 2013, was approximately 9.85% and 9.73%, 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:

	Six Months Ended June 30, 2014	Six Months Ended June 30, 2013
Risk free interest rate	0.04% - 4.89%	0.39% - 5.11%
Expected life (years)	3.26 - 7.00	2.82 - 7.00
Expected volatility	91.99% - 198.38%	91.99% - 198.38%
Expected dividends	None	None

The Company granted 2,500 stock options during the three and six months ended June 30, 2014. There were no stock options exercised during the three and six months ended June 30, 2014.

The Company granted 26,554 stock options during the three and six months ended June 30, 2013. There were no stock options exercised during the three and six months ended June 30, 2013.

The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three and six months ended June 30, 2014 and 2013.

	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013
Research and development	$ 21	$ 49	$ 48	$ 245
Sales and marketing	24	17	37	117
General and administrative	37	100	83	42
Director options	4	10	9	25
Stock-based compensation expense	$ 86	$ 176	$ 177	$ 429

A summary of option activity under the Company's plans as of June 30, 2014 and 2013 is as follows:

Options	2014				2013
	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1,	69,537	$ 0.05		$ -	44,529	$ 0.05		$ 2,230
Granted	2,500	$ 0.03		$ 7	26,554	$ 0.04		$ 1,188
Exercised	-	$ -		$ -	-	$ -		$ -
Forfeited or expired	(50)	$ 0.22		$ -	(610)	$ 0.14		$ (85)
Outstanding at June 30	71,987	$ 0.05	4.60	$ 7	70,473	$ 0.05	5.51	$ 3,333
Vested and expected to vest at June 30	46,864	$ 0.05	4.24	$ -	63,615	$ 0.05	5.51	$ 3,009
Exercisable at June 30	51,984	$ 0.05	4.24	$ -	33,083	$ 0.05	4.94	$ 1,638

The following table identifies the range of outstanding and exercisable options as of June 30, 2014:

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
$ 0.02 - $0.50	71,987	4.60	$ 0.05	51,984	$ 0.05

A summary of the status of the Company's non-vested shares as of June 30, 2014, is as follows:

Nonvested Shares	Shares	Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2014	26,158	$ 0.04
Granted	2,500	$ 0.03
Forfeited	-	$ -
Vested	(8,655)	$ 0.04
Non-vested at June 30, 2014	20,032	$ 0.04

As of June 30, 2014, there was a total of $317 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

Information with respect to the class of Preferred Stock at June 30, 2014 is as follows:

Class of Preferred Stock	Annual Dividend	Annual Dividend Payable, in Cash or In Kind	Liquidation Preference	Conversion Price	YTD Dividend Shares in Kind	Total Preferred Shares Outstanding	Common Shares to be issued if Fully Converted
Series A-1	8%	Quarterly in Arrears	$ 1.00	$ 0.1400	41	1,073	7,664
Series B	10%	Quarterly in Arrears	$ 1.50	$ 0.0433	558	11,660	269,105
Series C	10%	Quarterly in Arrears	$ 1.50	$ 0.0225	226	4,734	210,412
Series D-1	10%	Quarterly in Arrears	$ 1.00	$ 0.0225	201	4,409	195,956
Series D-2	10%	Quarterly in Arrears	$ 1.00	$ 0.0500	255	5,436	108,713

Information with respect to dividends issued on the Company's Preferred stock for the three and six month periods ended June 30, 2014 and June 30, 2013 is as follows:

	Dividends				Beneficial Conversion Feature Related to dividends
	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013	2014	2013	2014	2013
Series A-1	$ 21	$ 19	$ 41	$ 37	$ -	$ -	$ -	$ -
Series B	$ 284	$ 257	$ 558	$ 504	$ -	$ -	$ -	$ -
Series C	$ 115	$ 107	$ 226	$ 210	$ 13	$ 83	$ 50	$ 126
Series D-1	$ 107	$ 31	$ 201	$ 59	$ 12	$ 183	$ 297	$ 195
Series D-2	$ 132	$ 96	$ 255	$ 177	$ -	$ -	$ 52	$ -
Total	$ 659	$ 510	$ 1,281	$ 987	$ 25	$ 266	$ 399	$ 321

Series A-1 Preferred Stock

The shares of Series A-1 Preferred Stock are convertible any time and are subordinate to the Series B, Series C and Series D Preferred Stock.

Series B Preferred Stock

The shares of Series B Preferred Stock are convertible at any time and are subordinate to the Series C and Series D Preferred Stock.

Series C Preferred Stock

The shares of Series C Preferred Stock are convertible into Common Stock at any time and are subordinate to the Series D Preferred Stock.

Series D Preferred Stock

The material terms of the Series D-1 and Series D-2 Preferred Stock, other than the initial conversion price, are essentially the same. The shares of Series D Preferred Stock are convertible at any time and rank senior to the Company's outstanding shares of Series A-1, Series B and Series C Preferred Stock, and of Common Stock with respect to dividend rights and liquidation preferences.

In May 2013, the Company completed a private placement of 230 units of Series D Preferred Stock consisting of one (1) share of Series D-1 Preferred Stock and four (4) shares of Series D-2 Preferred Stock. The private placement provided $1,150 in proceeds to the Company.

On December 31, 2013, the Company converted approximately $1,179 of short-term debt plus accrued interest into 786 shares of Series D-1 Preferred Stock and 393 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire three (3) years from the date of issuance. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.

On December 31, 2013, the Company sold for $870 in cash, net of $40 administrative fee paid to SG Phoenix, 607 Shares of Series D-1 preferred Stock and 303 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire three (3) years from the date of issuance. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.

In connection with the December 31, 2013, offering, the Company adjusted the number of shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock issued to investors in the May 2013 offering described above, in order to give such investors shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock in the same ratio as offered to Investors in the December 31, 2013, offering. This resulted in an exchange of 537 shares of Series D-2 Preferred into Series D-1 Preferred. The Company also issued warrants to purchase Common Stock in the same manner as offered to investors in the December 31, 2013, offering.

On February 7, 2014, the Company sold for $733 in cash, net of $47 administrative fee paid in cash to SG Phoenix and a nonrelated third party, 520 Shares of Series D-1 preferred Stock and 260 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire December 31, 2016. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.

On March 6, 2014, the Company sold for $406 in cash, net of $4 in administrative fees paid in cash to an unrelated third party, 273 Shares of Series D-1 preferred Stock and 137 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire December 31, 2016. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.

SG Phoenix received warrants to purchase 3,000 shares of Common stock, and two unrelated parties received warrants to purchase an aggregate of 1,600 shares of Common Stock in payment of administrative and finder's fees associated with the financings, in addition to the cash payments discussed above. These warrants are immediately exercisable and expire three (3) years from the date of issuance. The warrants are exercisable in whole or in part and contain a cashless exercise provision.

Preferred Stock Voting and Other Rights

Generally, the Company's Preferred Stock votes together on an as converted basis with the holders of Common Stock. In addition, the Company's Preferred Stock enjoys certain protective provisions, a liquidation preference and anti-dilution protection that are similar to one another.

Warrants

A summary of the warrant activity is as follows:

	June 30, 2014		June 30, 2013
	Warrants	Weighted Average Exercise Price	Warrants	Weighted Average Exercise Price
Outstanding at beginning of period	77,155	$ 0.0289	151,722	$ 0.0269
Issued	72,589	$ 0.0275	-	$ -
Exercised	-	$ -	(1,300)	$ 0.0225
Expired	(4,333)	$ 0.0225	(15,063)	$ 0.0343
Outstanding at end of period	145,411	$ 0.0289	135,359	$ 0.0252
Exercisable at end of period	145,411	$ 0.0289	135,359	$ 0.0252

A summary of the status of the warrants outstanding and exercisable as of June 30, 2014, is as follows:

Number of Warrants	Weighted Average Remaining Life	Weighted Average Exercise Price per share
13,069	0.22	$ 0.0225
123,699	2.28	$ 0.0275
8,643	1.06	$ 0.0500
145,411	2.14	$ 0.0289

On May 6, 2014, the Company entered into a $2 million Credit Agreement with Venture Champion Asia Limited, an affiliate of ICG Global Limited (the "Lender"). In connection with the Company's entry into the Credit Agreement, the Company issued the Lender a warrant to purchase approximately 10,909 shares of Common Stock. The warrant has a three year life and is exercisable at $0.0275 per share. The Company ascribed a value of $245, booked as interest expense, to the warrant using the Black Scholes Pricing Model, (See Note 6).

Contingent warrants

Investors that received warrants in connection with the Company's financing transaction in closings that occurred on December 13, 2013, February 7, 2014 and March 6, 2014, may receive additional warrants to purchase up to an aggregate of 120,782 shares of Common Stock, if the Company does not achieve certain revenue targets in the first three quarters of 2014. The Company ascribed a value of $566 to the warrants issued at closing, including the contingent warrants, using a Black Sholes valuation model. The Company also recorded a beneficial conversion feature of $305 related to the shares of Series D Preferred Stock issued in the February 7, 2014 and March 6, 2014 closing, based on the accounting conversion price of the shares of Series D Preferred Stock issued in those closings.

On May 14, 2014 the Company issued 40,262 contingent warrants in connection with the Company's financing transactions referenced above as a result of the Company not achieving its revenue targets in the first quarter ending March 31, 2014.

Since the Company did not achieve the revenue target for the three-month periods ended June 30, 2014, the Company will issue warrants to purchase 40,262 shares of common stock promptly after filing of this Form 10-Q.

At June 30, 2014, 145,411 shares of common stock were reserved for issuance upon exercise of outstanding warrants.