EQUITY

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Note 13 - EQUITY

The Company’s Articles of Incorporation, as amended, authorize the issuance of two classes of stock to be designated “Common Stock” and “Preferred Stock”. The Preferred Stock may be divided into such number of series and with the rights, preferences, privileges and restrictions as the Board of Directors may determine.

Series B Convertible Redeemable Preferred Stock

         The Company had 239,400 shares of Series B Preferred outstanding as of December 31, 2012 and 2011. At December 31, 2012 and 2011, the Company had cumulative undeclared dividends of approximately $8,000 ($0.03 per share) and $187,000 ($0.78 per share), respectively. There were no conversions of Series B Preferred into common stock during the year ended December 31, 2012 or 2011.

        Common Stock

        The following table summarizes outstanding common stock activity for the following periods:

	Common Stock
Shares outstanding at December 31, 2010		23,838,777
Shares issued pursuant to the Qualified Financing		20,090,000
Conversion of preferred stock into common		11,768,525
Conversion of convertible debt into common stock		9,774,559
Shares issued pursuant to warrants exercised for cash		1,310,000
Shares issued pursuant to cashless warrants exercised		1,194,547
Shares issued pursuant to options exercised		14,587
Shares issued as compensation in lieu of cash		10,000
Recoup of forfeited restricted stock grants		(12,079	)
Shares outstanding at December 31, 2011		67,988,916
Shares issued pursuant to warrants exercised for cash		7,052,647
Shares issued pursuant to cashless warrants exercised		1,573,362
Shares issued pursuant to options exercised		24,924
Shares outstanding at December 31, 2012		76,639,849

     During the year ended December 31, 2012, the Company issued 24,924 shares of common stock pursuant to the exercise of 24,924 options for cash proceeds of approximately $7,000.  During the year ended December 31, 2012, the Company issued 7,052,647 shares of common stock pursuant to the exercise of 7,052,647 warrants for cash proceeds of approximately $3,527,000. During the year ended December 31, 2012, the Company issued 1,573,362 shares of common stock pursuant to the cashless exercise of 2,905,628 warrants.

Warrants

As of December 31, 2012, warrants to purchase 18,788,485 shares of common stock at prices ranging from $0.50 to $1.67 were outstanding. All warrants are exercisable as of December 31, 2012 and expire at various dates through December 2016, with the exception of an aggregate of 250,000 warrants, which become exercisable only upon the attainment of specified events.

The following table summarizes warrant activity for the following periods:

	Warrants			Weighted-
				Average
				Exercise Price
Balance at December 31, 2010		19,737,612		$	0.54
Granted		12,802,500		$	0.52
Expired / Canceled		(546,044	)	$	0.50
Exercised		(3,540,308	)	$	0.50
Balance at December 31, 2011		28,453,760		$	0.52
Granted		305,000		$	0.92
Expired / Canceled		(12,000	)	$	0.50
Exercised		(9,958,275	)	$	0.50
Balance at December 31, 2012		18,788,485		$	0.56

During the year ended December 31, 2012, there were 2,905,628 warrants exercised pursuant to cashless transactions and 12,000 warrants expired. During the year ended December 31, 2012, there were 7,052,647 warrants exercised for cash resulting in cash proceeds to the Company of approximately $3,526,000. The Company issued 1,573,362 shares of its common stock pursuant to cashless warrant exercises and 7,052,647 shares of its common stock pursuant to warrants exercised for cash.

               During the year ended December 31, 2012, the Company issued to Vocel a warrant to purchase 150,000 shares of the Company’s common stock (“Purchaser Warrant”).  The Purchaser Warrant is exercisable at $0.88 per share and vests 100% at such time as the Company has derived $500,000 of gross revenue from the sale or license of the purchased intellectual property (“Warrant Vesting Date”).  The Purchaser Warrant is exercisable for a period of three years from the Warrant Vesting Date. The Purchaser Warrant did not vest during the year ended December 31, 2012 as the $500,000 gross revenue threshold was not met.

               During the year ended December 31, 2012, the Company issued to certain consultants warrants to purchase 50,000 shares of the Company’s common stock. Such warrants were issued upon the attainment of certain performance conditions, are exercisable at $1.10 per share and have a three year term. The Company determined the grant date fair value of these warrants using the Black-Scholes valuation model to be approximately $25,000.  Such expense is recorded in the Company’s Consolidated Statement of Operations for the year ended December 31, 2012 as a component of general and administrative expense.

               During the year ended December 31, 2012, the Company issued to certain consultants warrants to purchase 100,000 shares of the Company’s common stock. Such warrants are exercisable at $0.98 per share and have a two year term from the date of issuance. The warrants will vest 100% at such time as the Company has derived $1.5 million of gross revenue from the consultant’s efforts. These warrants did not vest during the year ended December 31, 2012 as the $1.5 million gross revenue threshold was not met.

   During the year ended December 31, 2012, the Company issued to certain consultants warrants to purchase 5,000 shares of the Company’s common stock. Such warrants are exercisable at $1.25 per share and have a two year term from the date of issuance. The Company determined the grant date fair value of these warrants using the Black-Scholes valuation model to be approximately $2,000.  Such expense is recorded in the Company’s Consolidated Statement of Operations for the year ended December 31, 2012 as a component of sales and marketing expense.

               The following table summarizes information regarding the warrants outstanding as of December 31, 2012:

Exercise Price		Number Outstanding	Weighted—Average  Remaining Life (Years)	Weighted—Average  Exercise Price
$	0.50	17,029,456	2.97	$	0.50
$	0.60	200,000	1.76	$	0.60
$	0.80	150,000	5.00	$	0.80
$	0.98	100,000	1.63	$	0.98
$	1.00	265,280	1.58	$	1.00
$	1.10	50,000	2.59	$	1.10
$	1.20	270,833	0.20	$	1.20
$	1.25	305,000	0.46	$	1.25
$	1.67	417,916	0.23	$	1.67
		18,788,485