SEC Connect

CAUTIONARY STATEMENT

This Annual Report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Annual Report. Additionally, statements concerning future matters such as the development of new products, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements.

Although forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” in Item 1A, as well as those discussed elsewhere in this Annual Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

PART I

ITEM 1.

BUSINESS

As used in this Annual Report, “we,” “us,” “our,” “ImageWare,” “ImageWare Systems,” “Company” or “our Company” refers to ImageWare Systems, Inc. and all of its subsidiaries.

Overview

The Company is a pioneer and leader in the emerging market for biometrically enabled software-based identity management solutions. Using those human characteristics that are unique to us all, we create software that provides a highly reliable indication of a person’s identity. Our “flagship” product is our patented IWS Biometric Engine®. Scalable for small city business or worldwide deployment, our IWS Biometric Engine is a multi-biometric software platform that is hardware and algorithm independent, enabling the enrollment and management of unlimited population sizes. It allows a user to utilize one or more biometrics on a seamlessly integrated platform. Our products are used to manage and issue secure credentials, including national IDs, passports, driver licenses and access control credentials. Our products also provide law enforcement with integrated mug shot, LiveScan fingerprint and investigative capabilities. We also provide comprehensive authentication security software using biometrics to secure physical and logical access to facilities or computer networks or Internet sites. Biometric technology is now an integral part of all markets we address and all of our products are integrated into the IWS Biometric Engine.

Historically, we have marketed our products to government entities at the federal, state and local levels, however, through the emergence of cloud based computing, a mobile market that demands increased security and interoperable systems, and the proven success of our products in the government markets, has enabled us to enlarge our target market focus to include the emerging consumer and non-government enterprise marketplace.

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Our biometric technology is a core software component of an organization’s security infrastructure and includes a multi-biometric identity management solution for enrolling, managing, identifying and verifying the identities of people by the physical characteristics of the human body. We develop, sell and support various identity management capabilities within government (federal, state and local), law enforcement, commercial enterprises, and transportation and aviation markets for identification and verification purposes. Our IWS Biometric Engine is a patented biometric identity management software platform for multi-biometric enrollment, management and authentication, managing population databases of virtually unlimited sizes. It is hardware agnostic and can utilize different types of biometric algorithms. It allows different types of biometrics to be operated at the same time on a seamlessly integrated platform. It is also offered as a Software Development Kit based search engine, enabling developers and system integrators to implement a biometric solution or integrate biometric capabilities into existing applications without having to derive biometric functionality from pre-existing applications. The IWS Biometric Engine combined with our secure credential platform, IWS EPI Builder, provides a comprehensive, integrated biometric and secure credential solution that can be leveraged for high-end applications such as passports, driver licenses, national IDs, and other secure documents.

Our law enforcement solutions enable agencies to quickly capture, archive, search, retrieve, and share digital images, fingerprints and other biometrics as well as criminal history records on a stand-alone, networked, wireless or Web-based platform. We develop, sell and support a suite of modular software products used by law enforcement and public safety agencies to create and manage criminal history records and to investigate crime. Our IWS Law Enforcement solution consists of five software modules: Capture and Investigative modules, which provide a criminal booking system with related databases as well as the ability to create and print mug photo/SMT image lineups and electronic mugbooks; a Facial Recognition module, which uses biometric facial recognition to identify suspects; a Web module, which provides access to centrally stored records over the Internet in a connected or wireless fashion; and a LiveScan module, which incorporates LiveScan capabilities into IWS Law Enforcement providing integrated fingerprint and palm print biometric management for civil and law enforcement use. The IWS Biometric Engine is also available to our law enforcement clients and allows them to capture and search using other biometrics such as iris or DNA.

Our secure credential solutions empower customers to create secure and smart digital identification documents with complete ID systems. We develop, sell and support software and design systems which utilize digital imaging and biometrics in the production of photo identification cards, credentials and identification systems. Our products in this market consist of IWS EPI Suite and IWS EPI Builder (“SDK”). These products allow for the production of digital identification cards and related databases and records and can be used by, among others, schools, airports, hospitals, corporations or governments. We have added the ability to incorporate multiple biometrics into the ID systems with the integration of IWS Biometric Engine to our secure credential product line.

Our enterprise authentication software includes the IWS Desktop Security product which is a comprehensive authentication management infrastructure solution providing added layers of security to workstations, networks and systems through advanced encryption and authentication technologies. IWS Desktop Security is optimized to enhance network security and usability, and uses multi-factor authentication methods to protect access, verify identity and help secure the computing environment without sacrificing ease-of-use features such as quick login. Additionally, IWS Desktop Security provides an easy integration with various smart card-based credentials including the Common Access Card (“CAC”), Homeland Security Presidential Directive 12 (“HSPD-12”), Personal Identity Verification (“PIV”) credential, and Transportation Worker Identification Credential (“TWIC”) with an organization’s access control process. IWS Desktop Security provides the crucial end-point component of a Logical Access Control System (“LACS”), and when combined with a Physical Access Control System (“PACS”), organizations benefit from a complete door to desktop access control and security model.

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Recent Developments

Creation of Series G Convertible Redeemable Preferred Stock and Series G Financing

On December 27, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series G Convertible Preferred Stock with the Delaware Division of Corporations, designating 6,120 shares of the Company’s preferred stock, par value $0.01 per share, as Series G Convertible Redeemable Preferred Stock (“Series G Preferred”). Shares of Series G Preferred rank junior to the Company’s Series B Convertible Redeemable Preferred Stock, Series E Convertible Redeemable Preferred Stock, Series F Convertible Redeemable Preferred Stock as well as the Company’s existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Company’s common stock, par value $0.01 per share (“Common Stock”). Each share of Series G Preferred has a liquidation preference of $1,000 per share (“Series G Liquidation Preference”), and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Series G Liquidation Preference, divided by $1.50.

On December 29, 2016, the Company accepted subscription forms from certain accredited investors (the “Investors”) to purchase a total of 1,625 shares of Series G Preferred for $1,000 per share (the “Series G Financing”). In addition, the Company also received executed exchange agreements from the Investors pursuant to which the Company exchanged an aggregate total of approximately 3.4 million shares of Common Stock held by the Investors for an aggregate total of approximately 4,400 shares of Series G Preferred.

Creation of Series F Convertible Redeemable Preferred Stock and Series F Financing

On September 2, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series F Convertible Preferred Stock with the Delaware Division of Corporations, designating 2,000 shares of its preferred stock as Series F Convertible Redeemable Preferred Stock (“Series F Preferred”). Shares of Series F Preferred rank junior to the Company’s Series B Convertible Redeemable Preferred Stock, Series E Convertible Redeemable Preferred Stock and existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Company’s Common Stock. Each share of Series F Preferred has a liquidation preference of $1,000 per share (“Series F Liquidation Preference”), and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Series F Liquidation Preference, divided by $1.50.

On September 7, 2016, the Company and Cap 1 LLC (the “Investor”), entered into a securities purchase agreement, wherein the Investor agreed to purchase 2,000 shares of Series F Preferred for $1,000 per share (the “Series F Financing”), resulting in gross proceeds to the Company of $2.0 million net of issuance costs of approximately $21,000.

Amendments to Lines of Credit

On December 27, 2016, in connection with the consummation of the Series G Financing, the Company and Neal Goldman, a member of the Company’s Board of Directors (the “Holder”), agreed to enter into the fifth amendment (the “Line of Credit Amendment”) to the convertible promissory note previously issued by the Company to the Holder on March 27, 2013 (the “Goldman Line of Credit”), to provide the Company with the ability to borrow up to $5.5 million under the terms of the Goldman Line of Credit, bringing the total amount the Company may borrow under its existing lines of credit to $6.0 million. In addition, the Maturity Date, as defined in the Goldman Line of Credit, was amended to be December 31, 2017. The Line of Credit Amendment was executed on January 23, 2017.

In addition, on January 23, 2017, the Company and Charles Crocker, also a member of the Board of Directors of the Company, amended the line of credit and promissory note, dated March 9, 2016 (the “Crocker LOC”), to extend the maturity date thereof to December 31, 2017. No other amendments were made to the Crocker LOC.

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Key Product Introduction

On November 14, 2016, the Company introduced GoVerifyID® Enterprise Suite, a multi-modal, multi-factor biometric authentication solution for the enterprise market. An algorithm-agnostic solution, GoVerify ID Enterprise Suite is an end-to-end biometric platform that seamlessly integrates with an enterprise’s existing Microsoft infrastructure, offering businesses a turnkey biometric solution for quick deployment. The Company feels that this product has the potential to dramatically accelerate adoption of its biometric solution due to the worldwide prevalence of enterprise use of the Microsoft infrastructure.

Working across the entire enterprise ecosystem, GoVerifyID Enterprise Suite offers a consistent user experience and centralized administration with the highest level of security, flexibility, and usability. Specific benefits include:

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Mobile-workforce friendly—With GoVerifyID Enterprise Suite user authentication logins are possible for a tablet or laptop even when disconnected from the corporate network. Additionally, GoVerifyID Enterprise offers a consistent user authentication experience across all login environments.

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Hybrid cloud—GoVerifyID Enterprise Suite is linked from the cloud to an enterprise’s Microsoft infrastructure and is backward compatible with Windows 7, 8 and 10. Additionally, because the solution is SaaS-based it can easily scale to process hundreds of millions of transactions and store just as many biometrics.

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Seamless integration—GoVerifyID Enterprise Suite is a snap-in to the Microsoft Management console and can be centrally managed at the server. Additionally, the solution allows for seamless movement as it integrates with Active Directory using an organization’s existing Microsoft security infrastructure.

Industry Background

Biometrics and Secure Credential Markets

We believe the biometric identity management market will continue to grow as the role of biometrics becomes more widely adopted for enhancing security and complying with government regulations and initiatives and as biometric capture devices become increasingly mobile, robust and cost effective. Our biometric and secure credentialing solutions are meeting the requirements and standards for true multi-modal biometric identity management systems, as well as providing scalability to support evolving functionality.

As a result of HSPD-12, government organizations are required to adopt new processes for verifying the identity of employees and contractors as well as controlling access to secure facilities and information systems. In response to the strict requirements set forth by the Federal government, ImageWare enhanced its IWS Biometric Engine and secure credentialing product suite by adding card management and card printing modules which enable the offering of end-to-end support for PIV-I and PIV-II business processes, technical requirements, as well as the ability to partner with leading physical and logical access control vendors for logistics and deployment considerations. We believe that the HSPD-12 standards as well as the product enhancements created to meet those standards will, in large part, be adopted by the commercial market and that the Company’s products will transition into those market spaces without significant customization.

Organizations concerned with security can use our technology to create secure “smart” identification cards that can be instantly checked against a database of applicable biometrics to prevent unauthorized access to secure facilities or computer networks. We believe potential customers in these markets include, among others, large corporations, border crossings (land, air and sea), airports, hospitals, universities and government agencies.

Identification systems have historically been sold based upon the cost-savings digital systems offer over traditional non-digital systems. We believe that the ability to easily capture images and data in a digital database and to enable immediate and widespread access to that database for remote identification/verification will be a functionality that both public and private sector customers will require in the future and that such functionality will be one of the primary drivers for future growth within this market. We are able to provide field-proven identification products with high quality reference accounts across the board in terms of size and complexity of systems and user requirements. When combined with our proven biometric, cloud and interactive mobile messaging capabilities, we believe we can provide a leading product offering into the biometrically enabled secure identity management market.

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Law Enforcement and Public Safety Markets

The United States law enforcement and public safety markets are composed of federal, state and local law enforcement agencies. Our target customers include local police and sheriff’s departments, primary state law enforcement agencies, prisons, special police agencies, county constable offices, and federal agencies such as the Department of Homeland Security, FBI, DEA and ICE. In addition, police agencies in foreign countries have shown interest in using the full range of IWS Law Enforcement products to meet the growing need for a flexible yet robust booking/investigative solution that includes the routine use of IWS Facial Recognition as well as the ability to use other biometrics. We continue to target agencies in foreign countries for our biometric and law enforcement solutions.

Law enforcement customers require demanding end-to-end solutions that incorporate robust features and functionalities such as biometric and secure credentialing capabilities, as well as instant access to centrally maintained records for real time verification of identity and privileges. Law enforcement has long used the multiple biometrics of fingerprint and face in establishing an individual’s identity record. More recently, law enforcement is seeking capability to utilize additional biometrics such as iris and DNA. The Company’s multi-biometric platform product, the IWS Biometric Engine, allows company customers to use as many and different biometrics as desired all on a single, integrated platform.

Agencies are also moving toward a more shared experience where specific pieces of suspect/arrest data may be viewed by outside agencies allowing a suspect’s identity to be quickly defined with the end goal being the swift apprehension of the subject.

Products and Services

Our identity management solutions are primarily focused around biometrics and secure credentials providing complete, cross-functional and interoperable systems. Our biometric and secure credentialing products provide complete and interoperable solutions with features and functions required throughout the entire identity management life cycle, enabling users the flexibility to make use of any desired options, such as identity proofing and enrollment, card issuance, maintenance and access control. Our solutions offer a significant benefit that one vendor’s solution is used throughout the various stages, from establishing an applicant’s verified identity, to issuance of smart card based credentials, to the usage and integration to physical and logical access control systems.

These solutions improve global communication, the integrity and authenticity of access control to facilities and information systems, as well as enhance security, increase efficiency, reduce identity fraud, and protect personal privacy.

We categorize our identity management products and services into three basic markets: (i) Biometrics, (ii) Secure Credential, and (iii) Law Enforcement and Public Safety. We offer a series of modular products that can be seamlessly integrated into an end-to-end solution or licensed as individual components.

Biometrics

Our biometric product line consists of the following:

GoMobile InteractiveTM

In July 2013, the Company introduced its mobile biometric identity management platform, GoMobile InteractiveTM (“GMI”). Based upon acquired patented messaging platform technology combined with the Company’s patented IWS Biometric Engine®, GMI allows global business, service and content providers to offer users biometric security for their products, services and content on the Android or iPhone operating systems. GMI includes a standalone application that can be used as a turnkey solution, as well as a software development kit, enabling integration with existing mobile applications for Android and iPhone. Targeted verticals for the product include mobile banking and value transfer, retail, healthcare and entertainment services. By supporting multi-modal biometrics on a mobile device, the Company is able to offer an out-of-band security solution that is far superior to traditional password or PIN protection, which are now failing and costing businesses billions of dollars. In addition, the GMI service supports dynamic information gathering, allowing clients to learn about their users through the use of interactive surveys that can be secured using biometrics.

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IWS Biometric Engine

This is a biometric identity management platform for multi-biometric enrollment, management and authentication, managing population databases of unlimited sizes without regard to hardware or algorithm. Searches can be 1:1 (verification), 1:N (identification), X:N (investigative) and N:N (database integrity). IWS Biometric Engine is technology and biometric agnostic, enabling the use of biometric devices and algorithms from any vendor, and the support of the following biometric types: finger, face, iris, hand geometry, palm, signature, DNA, voice, 3D face and retina. IWS Biometric Engine is a second-generation solution from the Company that is based on field-proven ImageWare technology solutions that have been used to manage millions of biometric records since 1997 and is ideal for a variety of applications including: criminal booking, background checks (civil and criminal), watch list, visa/passport and border control (air, land and sea), physical and logical access control, and other highly-secure identity management environments. The Company believes that this product will be very attractive to the emerging commercial and consumer markets as they deploy biometric identity management systems.

Our IWS Biometric Engine is scalable, and biometric images and templates can be enrolled either live or offline. Because it stores the enrolled images, a new algorithm can be quickly converted to support new or alternate algorithms and capture devices. The IWS Biometric Engine is built to be hardware “agnostic,” and currently supports over 100 hardware capture devices and over 70 biometric algorithms.

The IWS Biometric Engine is available as a Software Development Kit, as well as a platform for custom configurations to meet specific customer requirements. The added suite of products provides government, law enforcement, border management and enterprise businesses, a wide variety of application-specific solutions that address specific government mandates and technology standards. It also provides the ability to integrate into existing legacy systems and expand based upon specific customer requirements. This enables users to integrate a complete solution or components as needed. The application suite of products includes packaged solutions for:

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HSPD-12 Personal Identity Verification

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Border Management

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Applicant Identity Vetting

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Mobile Acquisition

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Physical Access Control

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Single-Sign-On and Logical Access Control

IWS PIV Management Application. The Company provides a set of Enterprise Server products within our complete PIV solution, and these software products supply server-based features and functions, while the use case for PIV requires client-based presentation of PIV data and workflow. The IWS PIV Management Application supplies the web-based graphical user interface that presents the user or client interface to the various server functions. Since the server-based applications perform specific functions for specific phases of the PIV life cycle, these server-based applications need to be bound together with additional workflow processes. The IWS PIV Management Application meets this need with software modules that interface and interconnect the server-based applications.

IWS PIV Middleware. The IWS PIV Middleware product, which is NIST certified and listed on the GSA approved product list, is a library of functions that connect a card reader & PIV card on the hardware side with a software application. The library implements the specified PIV Middleware API functions that support interoperability of PIV Cards. This software has been developed in conformance with the FIPS-201 specification, and the software has been certified by the NIST Personal Identification Verification Program (“NPIVP”) Validation Authority as being compliant.

IWS Background Server. The IWS Background Server is a software application designed specifically for government and law enforcement organizations to support the first stage of biometric identity management functions such as identity proofing and vetting. IWS Background Check Server automatically processes the submission of an applicant’s demographic and biographic data to investigative bureaus for background checks prior to issuing a credential.

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IWS Desktop Security. IWS Desktop Security is a highly flexible, scalable and modular authentication management platform that is optimized to enhance network security and usability. This architecture provides an additional layer of security to workstations, networks and systems through advanced encryption and authentication technologies. Biometric technologies (face, fingerprint, iris, voice or signature), can be seamlessly coupled with TPM chips to further enhance corporate security. USB tokens, smart cards and RFID technologies can also be readily integrated. Additional features include:

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Support for multiple authentication tools including Public Key Infrastructure (“ PKI”) within a uniformed platform and Privilege Management Infrastructure (“PMI”) technology to provide more advanced access control services and assure authentication and data integrity;

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Integration with IWS Biometric Engine for searching and match capabilities (1:1, 1:N and X:N);

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Integration with IWS EPI Builder for the production and management of secure credentials;

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Support for both BioAPI and BAPI standards;

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Supports a single sign-on feature that securely manages Internet Explorer and Windows application ID and password information;

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Supports file and folder encryption features; and

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Supports various operating systems, including Microsoft Windows 2000, Windows XP, and Windows Server 2003.

IWS Biometric Quality Assessment & Enhancement (“IWS Biometric IQA&E”). The IWS Biometric IQA&E is a biometric image enhancement and assessment solution that assists government organizations with the ability to evaluate and enrich millions of biometric images automatically, saving time and costs associated with biometric enrollment while maintaining image and database integrity.

The IWS Biometric IQA&E improves the accuracy and effectiveness of biometric template enrollments. The software may be used stand-alone or in conjunction with the IWS Biometric Engine. IWS Biometric IQA&E provides automated image quality assessment with respect to relevant image quality standards from organizations such as International Civil Aviation Organization, National Institute of Standards and Technology (“NIST”), International Organization for Standards (“ISO”) and American Association of Motor Vehicle Association (“AAMVA”). IWS Biometric IQA&E also enables organizations to conduct multi-dimensional facial recognition, which further enhances accuracy for numerous applications including driver licenses, passports and watch lists.

IWS Biometric IQA&E automatically provides real-time biometric image quality analysis and feedback to improve the overall effectiveness of biometric images thus increasing the biometric verification performance, and maintaining database and image data integrity. IWS Biometric IQA&E provides a complete platform that includes an image enhancement library for biometric types including face, finger and iris.

Secure Credential

Our secure credential products consist of the following:

GoVerifyID® On November 14, 2016, the Company introduced GoVerifyID® Enterprise Suite, a multi-modal, multi-factor biometric authentication solution for the enterprise market. An algorithm-agnostic solution, GoVerify ID Enterprise Suite is an end-to-end biometric platform that seamlessly integrates with an enterprise’s existing Microsoft infrastructure, offering businesses a turnkey biometric solution for quick deployment. The Company feels that this product has the potential to dramatically accelerate adoption of its biometric solution due to the worldwide prevalence of enterprise use of the Microsoft infrastructure. Working across the entire enterprise ecosystem, GoVerifyID Enterprise Suite offers a consistent user experience and centralized administration with the highest level of security, flexibility, and usability.

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IWS Card Management. The IWS Card Management System (“CMS”) is a comprehensive solution to support and manage the issuance of smart cards complete with the following capabilities:

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Biometric enrollment and identity proofing with Smart Card encoding of biometrics;

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Flexible models of central or distributed issuance of credentials;

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Customizable card life-cycle workflow managed by the CMS; and

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Integration of the CMS data with other enterprise solutions, such as physical access control and logical access control (i.e. Single-Sign-On, or SSO).

IWS EPI Suite. This is an ID software solution for producing, issuing, and managing secure credentials and personal identification cards. Users can efficiently manage large amounts of data, images and card designs, as well as track and issue multiple cards per person, automatically populate multiple cards and eliminate redundant data entry. IWS EPI Suite was designed to integrate with our customers’ existing security and computing infrastructure. We believe that this compatibility may be an appealing feature to corporations, government agencies, transportation departments, school boards, and other public institutions.

IWS EPI Builder. This is a software developer’s kit and a leading secure credential component of identity management and security solutions, providing all aspects of ID functionality from image and biometric capture to the enrollment, issuance and management of secure documents. It contains components which developers or systems integrators can use to support and produce secure credentials including national IDs, passports, International Civil Aviation Office -compliant travel documents, smart cards and driver licenses. IWS EPI Builder enables organizations to develop custom identification solutions or incorporate sophisticated identification capabilities into existing applications including the ability to capture images, biometric and demographic data; enable biometric identification and verification (1:1 and 1:X) as well as support numerous biometric hardware and software vendors. It also enables users to add electronic identification functionality for other applications, including access control, tracking of time and attendance, point of sale transactions, human resource systems, school photography systems, asset management, inventory control, warehouse management, facilities management and card production systems.

IWS EPI PrintFarm. While it is the last stage of PIV Card Issuance, the PIV smart card printing process is by no means the least important stage. Production printing of tens of thousands of PIV cards requires a significant investment and a well-engineered system. The IWS EPI PrintFarm software offers a cost-effective yet high-performance method for high-volume card printing.

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IWS PIV Encoder. PIV smart cards must be programmed with specific mandatory data, digital signatures and programs in order to maintain the interoperability as well as the security features specified for the cards. The IWS PIV Encoder could be considered to be a complex device driver that properly programs the PIV smart cards. The Encoder interacts with the Card Management System for data payload elements. It interacts with the Certificate Authority to encrypt or sign the PIV smart card data with trusted certificates. Finally, it acts as the application-level device driver to make the specific PIV smart card encoding system properly program the smart card, regardless if the system is a standalone encoding system or one integrated into a card printer.

Law Enforcement and Public Safety

We believe our integrated suite of software products significantly reduces the inefficiencies and expands the capabilities of traditional booking and mug shot systems. Using our products, an agency can create a digital database of thousands of criminal history records, each including one or more full-color facial images, finger and palm prints, biographic text information and images of other distinctive physical features such as scars, marks and tattoos (“SMT’s”). This database can be quickly searched using text queries, or biometric technology that can compare biometric characteristics of an unknown suspect with those in the database.

Our investigative software products can be used to create, edit and distribute both mug photo and SMT photo lineups of any size. In addition, electronic mug books display hundreds of images for a witness to review and from which electronic selections are made. The Witness View software component records the viewing of a lineup (mug photo or SMT) detailing the images provided for viewing along with the image or images selected. In addition to a printed report, the Witness View module provides a non-editable executable file (.exe) that may be played on any computer for court exhibit viewing purposes.

Our IWS Law Enforcement solution consists of software modules, which may also be purchased individually. The IWS Law Enforcement Capture and Investigative module make up our booking system and database. Our add-on modules include LiveScan, Facial Recognition, Law Enforcement Web and Witness View as well as the IWS Biometric Engine.

IWS Law Enforcement. IWS Law Enforcement is a digital booking, identification and investigative solution that enables users to digitally capture, store, search and retrieve images and demographic data including mug shots, fingerprints and SMT’s. Law enforcement may choose between submitting fingerprint data directly to the State Automated Fingerprint Identification System (“AFIS”), FBI criminal repository, or other agencies as required. Additional features and functionality include real-time access to images and data, creation of photo lineups and electronic mug books, and production of identification cards and credentials. IWS Law Enforcement also uses off-the-shelf hardware and is designed to comply with open industry standards so that it can operate on an array of systems ranging from a stand-alone personal computer to a wide area network. To avoid duplication of entries, the system can be integrated easily with several other information storage and retrieval systems, such as a records/jail management system (“RMS/JMS”) or an automated fingerprint identification system.

Capture. This software module allows users to capture and store a variety of images (facial, SMT and others such as evidence photos) as well as biographical text information. Each record includes images and text information in an easy-to-view format made up of fields designed and defined by the individual agency. Current customers of this module range from agencies that capture a few thousand mug shots per year to those that capture hundreds of thousands of mug shots each year.

LiveScan. This software module is FBI certified and complies with the FBI Integrated Automated Fingerprint Identification System (“IAFIS”) Image Quality Specifications (“IQS”) while utilizing FBI certified LiveScan devices from most major vendors. LiveScan allows users to capture single to ten prints and palm data, providing an integrated biometric management solution for both civil and law enforcement use. By adding LiveScan capabilities, law enforcement organizations further enhance the investigative process by providing additional identifiers to identify suspects involved in a crime. In addition, officers no longer need to travel to multiple booking stations to capture fingerprints and mug shots. All booking information including images may be located at a central designation and from there routed to the State AFIS or FBI criminal history record repository.

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Investigative. This software module allows users to search the database created with IWS Law Enforcement. Officers can conduct text searches in many fields, including file number, name, alias, distinctive features, and other information such as gang membership and criminal history. The Investigative module creates a catalogue of possible matches, allowing officers or witnesses to save time by looking only at mug shots that closely resemble the description of the suspect. This module can also be used to create a line-up of similar facial images from which a witness may identify the suspect.

Facial Recognition. This software module uses biometric facial recognition and retrieval technology to help authorities identify possible suspects. Images taken from surveillance videos or photographs can be searched against a digital database of facial images to retrieve any desired number of faces with similar characteristics. This module can also be used at the time of booking to identify persons using multiple aliases. Using biometrics-based technology, the application can search through thousands of facial images in a matter of seconds, reducing the time it would otherwise take a witness to flip through a paper book of facial images that may or may not be similar to the description of the suspect. The Facial Recognition module then creates a selection of possible matches ranked in order of similarity to the suspect, and a percentage confidence level is attributed to each possible match. The application incorporates search engine technology, which we license from various facial recognition algorithm providers.

LE Web. This software module enables authorized personnel to access and search agency booking records stored in IWS Law Enforcement through a standard Web browser from within the agency’s intranet. This module allows remote access to the IWS Law Enforcement database without requiring the user to be physically connected to the customer’s network. This application requires only that the user have access to the Internet and authorization to access the law enforcement agency’s intranet.

EPI Designer for Law Enforcement. The EPI Designer for LE software is a design solution created for the IWS Law Enforcement databases based on the IWS EPI Suite program. This program allows integration with various IWS databases for the production of unique booking/inmate reports, wristbands, photo ID cards, Wanted or BOLO fliers, etc., created from the information stored in booking records. Designs can be created in minutes and quickly added to the IWS Law Enforcement system allowing all users with appropriate permissions immediate access to the newly added form.

Maintenance and Customer Support

We offer software and hardware support to our customers. Customers can contract with us for technical support that enables them to use a toll-free number to speak with our technical support center for software support and general assistance 24 hours a day, seven days a week. As many of our government customers operate around the clock and perceive our systems as critical to their day-to-day operations, a very high percentage contract for technical support. For the years ended December 31, 2016, 2015 and 2014, maintenance revenues accounted for approximately 67%, 54% and 61% of our total revenues, respectively.

Software Customization and Fulfillment

We directly employ computer programmers and retain independent programmers to develop our software and perform quality control. We provide customers with software that we specifically customize to operate on their existing computer system. We work directly with purchasers of our system to ensure that the system they purchase will meet their unique needs. We configure and test the system either at our facilities or on-site and conduct any customized programming necessary to connect the system with any legacy systems already in place. We can also provide customers with a complete computer hardware system with our software already installed and configured. In either case, the customer is provided with a complete turnkey solution, which can be used immediately. When we provide our customers with a complete solution including hardware, we use off-the-shelf computers, cameras and other components purchased from other companies such as Dell or Hewlett Packard. Systems are assembled and configured either at our facilities or at the customer’s location.

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Customers

We have a wide variety of domestic and international customers. Most of our IWS Law Enforcement customers are government agencies at the federal, state and local levels in the United States. Our secure credential products are also being used in Australia, Canada, the United Arab Emirates, Kuwait, Saudi Arabia, Mexico, Colombia, Costa Rica, Venezuela, Singapore, Indonesia and the Philippines. For the year ended December 31, 2016, two customers accounted for approximately 30% or $1,162,000 of total revenue and had $78,000 trade receivables as of the end of the year, as compared to two customers that accounted for approximately 37% or $1,753,000 of total revenue and had $78,000 trade receivables as of the end of the December 31, 2015. For the year ended December 31, 2014, one customer accounted for approximately 17% or $725,000 of total revenue and had $0 trade receivables as of the end of the year.

Our Strategy

Our strategy is to provide patented open-architected identity management solutions including multi-biometric, secure credential and law enforcement technologies that are stand alone, integrated and/or bundled with key partners including channel relationships and large systems integrators such as, United Technology Security, GCR, Unisys, Lockheed Martin, IBM and Fujitsu, among others. Key elements of our strategy for growth include the following:

Fully Exploit the Biometrics, Access Control and Identification Markets

The establishment of the Department of Homeland Security coupled with the movement by governments around the world to authenticate the identity of their citizens, employees and contractors has accelerated the adoption of biometric identification systems that can provide secure credentials and instant access to centrally maintained records for real-time verification of identity and access (physical and logical) privileges. Using our products, an organization can create secure credentials that correspond to records including images and biographic data in a digital database. A border guard or customs agent can stop an individual to quickly and accurately verify his identity against a database of authorized persons, and either allow or deny access as required. Our technology is also standards based and applied to facilitate activities such as federal identification mandates while complying with personal identification verification standards such as HSPD-12, International Civil Aviation Organization standards, American Association of Motor Vehicle Administrators driver licenses, voter registration, immigration control and welfare fraud identification. We believe that these or very similar standards are applicable in markets throughout the world.

With the identity management market growing at a rapid pace, biometric identifiers are becoming recognized and accepted as integral components to the identification process in the public and private sectors. As biometric technologies (facial recognition, fingerprint, iris, etc.) are adopted, identification systems must be updated to enable their use in the field. We have built our solutions to enable the incorporation of one or multiple biometrics, which can be associated with a record and stored both in a database and on a card for later retrieval and verification without regard to the specific hardware employed. We believe the increasing demand for biometric technology will drive demand for our solutions. Our identity management products are built to accommodate the use of biometrics and meet the demanding requirements across the entire identity life cycle.

Expand Law Enforcement and Public Safety Markets

We intend to use our successful installations with customers such as the Arizona Department of Public Safety, New South Wales Police, and the San Bernardino County Sheriff’s Department as reference accounts and to market IWS Law Enforcement as a superior technological solution. Our recent addition of the LiveScan module and support for local AFIS to our IWS Law Enforcement will enhance its functionality and value to the law enforcement customer as well as increase the potential revenue the Company can generate from a system sale. We primarily sell directly to the law enforcement community. Our sales strategy is to increase sales to new and existing customers including renewing supporting maintenance agreements. We have also established relationships with large systems integrators such as Sagem Morpho to OEM our law enforcement solution utilizing their worldwide sales force. We will focus our sales efforts in the near term to establish IWS Law Enforcement as the integrated mug shot and LiveScan system adopted in as many countries, states, large counties and municipalities as possible. Once we have a system installed in a region, we intend to then sell additional systems or retrieval seats to other agencies within the primary customer’s region and in neighboring regions. In addition, we plan to market our integrated investigative modules to the customer, including Facial Recognition, Web and WitnessView. As customer databases of digital mug shots grow, we expect that the perceived value of our investigative modules, and corresponding revenues from sales of those modules, will also grow.

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Software as a Service Business Model

With the advent of cloud based computing, the proliferation of smart mobile devices which allow for reliable biometric capture and the need to secure access to data, products and services, the Company believes that the market for multi-biometric solutions will expand to encompass significant deployments of biometric systems in the commercial and consumer markets. The Company therefore intends to leverage the strength of its experience servicing existing government clients who have deployed the Company’s products for large populations, as well as its foundational patent portfolio in the field of multi-modal biometrics and the fusion of multiple biometric algorithms, to address the growing commercial and consumer market. As part of its marketing plan, the Company offered new versions of its product suite on a Software as a Service (“SaaS”) model during 2016. This new business model, which is intended to supplement the Company’s existing business model, will allow new commercial and consumer clients to biometrically verify identity in order to access data, products or services from mobile and desktop devices. As of December 2016, we have received significant interest and have entered into a number of proof of concept arrangements with customers and partners who we anticipate will initiate programs in the first half of 2017.

Mobile Applications

The Company strengthened its patent portfolio in June 2012 with the purchase of four U.S. patents relating to wireless technology from Vocel. These patents, combined with the Company’s existing foundational patents in the areas of biometric identification, verification, enrollment and fusion, provide a unique and protected foundation on which to build interactive mobile applications that are secured using biometrics.

The combination of our biometric identification technologies and wireless technologies has led to the development of the IWS Interactive Messaging System, which is a push application platform secured by biometrics that transforms mobile devices into a complete mobile ID, enabling companies to create applications that allow a range of unprecedented activities – from secure sharing of sensitive information to biometrically securing a mobile wallet. Identity authentication, using multi-modal biometrics gives users the confidence that their personal information is secure while the push marketing capabilities of the technology allow companies unparalleled interactivity that can be personalized to the needs and interests of their customers.

Sales and Marketing

We market and sell our products through our direct sales force and through indirect distribution channels, including systems integrators. As of December 31, 2016, we had sales and account representatives based domestically in the District of Columbia, California and internationally in Mexico. Geographically, our sales and marketing force consisted of nine persons in the United States, and one person in Mexico as of December 31, 2016.

Our direct sales organization is supported by technical experts. Our technical experts are available by telephone and conduct on-site customer presentations in support of our sales professionals.

The typical sales cycle for IWS Biometric Engine and IWS Law Enforcement includes a pre-sale process to define the potential customer’s needs and budget, an on-site demonstration and conversations between the potential customer and existing customers. Government agencies are typically required to purchase large systems by including a list of requirements in a Request for Proposal, known as an “RFP,” and by allowing several companies to openly bid for the project by responding to the RFP. If our response is selected, we enter into negotiations for the contract and, if successful, ultimately receive a purchase order from the customer. This process can take anywhere from a few months to over a year.

Our Biometric and ID products are also sold to large integrators, direct via our sales force and to end users through distributors. Depending on the customer’s requirements, there may be instances that require an RFP. The sales cycle can vary from a few weeks to a year.

In addition to our direct sales force, we have developed relationships with a number of systems integrators who contract with government agencies for the installation and integration of large computer and communication systems. By acting as a subcontractor to these systems integrators, we are able to avoid the time consuming and often-expensive task of submitting proposals to government agencies, and we also gain access to large clients.

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We also work with companies that offer complementary products, where value is created through product integration. Through teaming arrangements, we are able to enhance our products and to expand our customer base through the relationships and contracts of our strategic partners.

We plan to continue to market and sell our products internationally. Some of the challenges and risks associated with international sales include the difficulty in protecting our intellectual property rights, difficulty in enforcing agreements through foreign legal systems and volatility and unpredictability in the political and economic conditions of foreign countries. We believe we can work to successfully overcome these challenges.

Competition

The Law Enforcement and Public Safety Markets

Due to the fragmented nature of the law enforcement and public safety market and the modular nature of our product suite, we face different degrees of competition with respect to each IWS Law Enforcement module. We believe the principal bases on which we compete with respect to all of our products are:

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the unique ability to integrate our modular products into a complete biometric, LiveScan, imaging and investigative system;

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our reputation as a reliable systems supplier;

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the usability and functionality of our products; and

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the responsiveness, availability and reliability of our customer support.

Our law enforcement product line faces competition from other companies such as DataWorks Plus and 3M. Internationally, there are often a number of local companies offering solutions in most countries.

Secure Credential Market

Due to the breadth of our software offering in the secure credential market space, we face differing degrees of competition in certain market segments. The strength of our competitive position is based upon:

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our strong brand reputation with a customer base which includes small and medium-sized businesses, Fortune 500 corporations and large government agencies;

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the ease of integrating our technology into other complex applications; and

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the leveraged strength that comes from offering customers software tools, packaged solutions and Web-based service applications that support a wide range of hardware peripherals.

Our software faces competition from Datacard Corporation, a privately held manufacturer of hardware, software and consumables for the ID market as well as small, regionally based companies.

Biometric Market

The market to provide biometric systems to the identity management market is evolving and we face competition from a number of sources. We believe that the strength of our competitive position is based on:

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our ability to provide a system which enables the enrollment, management and authentication of multiple biometrics managing population databases of unlimited sizes;

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searches can be 1:1 (verification), 1:N (identification), X:N (investigative), and N:N (database integrity); and

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the system is technology and biometric agnostic, enabling the use of biometric devices and algorithms from any vendor, and the support of the following biometric types: finger, face, iris, hand geometry, palm, DNA, signature, voice, and 3D face and retin.

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Our multi-biometric product faces competition from French-based Safran, Irish-based Daon, 3M and Aware Inc., none of which have offerings with the scope and flexibility of our IWS Biometric Engine and its companion suite of products or relevant patent protection.

Intellectual Property

We rely on trademark, patent, trade secret and copyright laws and confidentiality and license agreements to protect our intellectual property. We have several federally registered trademarks including the trademark ImageWare and IWS Biometric Engine as well as trademarks for which there are pending trademark registrations with the United States, Canadian and other International Patent & Trademark Offices.

We hold several issued patents and have several other patent applications pending for elements of our products. We believe we have the foundational patents regarding the use of multiple biometrics and continue to be an IP leader in the biometric arena. It is our belief that this intellectual property leadership will create a sustainable competitive advantage. We are an early pioneer in the first to file patents related to Multi-Modal Biometrics and currently are the worldwide leader in Multi-Modal Biometric patents with 20 patents worldwide and 14 patents pending. These technologies will allow biometric matching for identity verification while protecting the privacy of an individual. It is our belief that such technology will be critical to providing biometric management solutions for the consumer market where privacy protection has been a historical issue and barrier to biometric adoption.

The combination of our biometric identification technologies and wireless technologies has led to the development of the IWS Interactive Messaging System, which is a push application platform secured by biometrics that transforms mobile devices into a complete mobile ID, enabling companies to create applications that allow a range of unprecedented activities – from secure sharing of sensitive information to biometrically securing a mobile wallet. Identity authentication, using multi-modal biometrics, gives users the confidence that their personal information is secure while the push marketing capabilities of the technology allow companies unparalleled interactivity that can be personalized to the needs and interests of their customers.

We regard our software as proprietary and retain title to and ownership of the software we develop. We attempt to protect our rights in the software primarily through patents and trade secrets. We have not published the source code of most of our software products and require employees and other third parties who have access to the source code and other trade secret information to sign confidentiality agreements acknowledging our ownership and the nature of these materials as our trade secrets.

Despite these precautions, it may be possible for unauthorized parties to copy or reverse-engineer portions of our products. While our competitive position could be threatened by disclosure or reverse engineering of this proprietary information, we believe that copyright and trademark protection are less important than other factors such as the knowledge, ability, and experience of our personnel, name recognition and ongoing product development and support.

Our software products are licensed to end users under a perpetual, nontransferable, nonexclusive license that stipulates which modules can be used and how many concurrent users may use them. These forms of licenses are typically not signed by the licensee and may be more difficult to enforce than signed agreements in some jurisdictions.

Research and Development

Our research and development team consisted of 38, 38 and 32 programmers, engineers and other employees as of December 31, 2016, 2015 and 2014, respectively. We also contract with outside programmers for specific projects as needed. We spent approximately $5.3 million, $4.6 million and $4.5 million on research and development in 2016, 2015 and 2014, respectively. We continually work to increase the speed, accuracy, and functionality of our existing products. We anticipate that our research and development efforts will continue to focus on new technology and products for the identity management markets.

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Employees

We had a total of 69, 67 and 61 full-time employees as of December 31, 2016, 2015 and 2014, respectively. Our employees are not covered by any collective bargaining agreement, and we have never experienced a work stoppage. We believe that our relations with our employees are good.

Environmental Regulation

Our business does not require us to comply with any particular environmental regulations.

ITEM 1A.

RISK FACTORS

An investment in our Common Stock involves a high degree of risk. Before investing in our Common Stock, you should consider carefully the specific risks detailed in this “Risk Factors” section and any prospectus or prospectus supplement. If any of these risks occur, our business, results of operations and financial condition could be harmed, the price of our Common Stock could decline, and you may lose all or part of your investment.

Available borrowings under our Lines of Credit may be insufficient to provide for our working capital needs for the next twelve months. In the event such Lines of Credit are insufficient to provide for our working capital requirements, we will need to raise additional capital to continue as a going concern.

During the year ended December 31, 2016, we incurred borrowings under the Lines of Credit of approximately $2,650,000, which amounts are due and payable on December 31, 2017. Subsequent to December 31, 2016 through the date of this report, we incurred additional borrowings under the Lines of Credit of $1,000,000. As a result, available borrowings under our Lines of Credit are $2,350,000. We anticipate needing to increase our borrowings under the Line of Credits to continue to fund our working capital needs, thereby increasing the aggregate amount of indebtedness due and payable on or before December 31, 2017.

If we are unable to implement our business plan, we may not generate sufficient revenue and profit to repay these borrowings in full when due. As a result, unless the holders of the notes issued under the Lines of Credit convert any outstanding balance into shares of Common Stock, we will need to seek an extension of the maturity date of the Lines of Credit on or before December 31, 2017. If we are unable to extend the maturity date of the Lines of Credit, we will be required to raise additional capital through debt and/or equity financing to continue as a going concern. No assurances can be given that any such financing will be available to us on favorable terms, if at all. At this time, we do not have any commitments for alternative financing or for an extension of the maturity date of the Lines of Credit. The inability to obtain debt or equity financing in a timely manner and in amounts sufficient to fund our operations, if necessary, would have an immediate and substantial adverse impact on our business, financial condition and results of operations.

We have a history of significant recurring losses totaling approximately $156.8 million at December 31, 2016, and these losses may continue in the future.

As of December 31, 2016, we had an accumulated deficit of approximately $156.8 million, and these losses may continue in the future. We expect to continue to incur significant sales and marketing, research and development, and general and administrative expenses. As a result, we will need to generate significant revenues to achieve profitability, and we may never achieve profitability.

Our operating results have fluctuated in the past and are likely to fluctuate significantly in the future.

Our operating results have fluctuated in the past. These fluctuations in operating results are the consequence of:

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varying demand for and market acceptance of our technology and products;

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changes in our product or customer mix;

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the gain or loss of one or more key customers or their key customers, or significant changes in the financial condition of one or more of our key customers or their key customers;

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our ability to introduce, certify and deliver new products and technologies on a timely basis;

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the announcement or introduction of products and technologies by our competitors;

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competitive pressures on selling prices;

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costs associated with acquisitions and the integration of acquired companies, products and technologies;

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our ability to successfully integrate acquired companies, products and technologies;

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our accounting and legal expenses; and

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general economic conditions.

These factors, some of which are not within our control, will likely continue in the future. To respond to these and other factors, we may need to make business decisions that could result in failure to meet financial expectations. If our quarterly operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price could drop suddenly and significantly. Most of our expenses, such as employee compensation and inventory, are relatively fixed in the short term. Moreover, our expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if our revenue for a particular period were below our expectations, we would not be able to proportionately reduce our operating expenses for that period. Any revenue shortfall would have a disproportionately negative effect on our operating results for the period.

We depend upon a small number of large system sales ranging from $100,000 to in excess of $2,000,000 and we may fail to achieve one or more large system sales in the future.

Historically, we have derived a substantial portion of our revenues from a small number of sales of large, relatively expensive systems, typically ranging in price from $100,000 to $2,000,000. If we fail to receive orders for these large systems in a given sales cycle on a consistent basis, our business could be significantly harmed. Further, our quarterly results are difficult to predict because we cannot predict in which quarter, if any, large system sales will occur in a given year. As a result, we believe that quarter-to-quarter comparisons of our results of operations are not a good indication of our future performance. In some future quarters, our operating results may be below the expectations of securities analysts and investors, in which case the market price of our Common Stock may decrease significantly.

Our lengthy sales cycle may cause us to expend significant resources for as long as one year in anticipation of a sale to certain customers, yet we still may fail to complete the sale.

When considering the purchase of a large computerized identity management system, potential customers may take as long as eighteen months to evaluate different systems and obtain approval for the purchase. Under these circumstances, if we fail to complete a sale, we will have expended significant resources and received no revenue in return. Generally, customers consider a wide range of issues before committing to purchase our products, including product benefits, ability to operate with their current systems, product reliability and their own budgetary constraints. While potential customers are evaluating our products, we may incur substantial selling costs and expend significant management resources in an effort to accomplish potential sales that may never occur. In times of economic recession, our potential customers may be unwilling or unable to commit resources to the purchase of new and costly systems.

A significant number of our customers and potential customers are government agencies that are subject to unique political and budgetary constraints and have special contracting requirements, which may affect our ability to obtain new and retain current government customers.

A significant number of our customers are government agencies. These agencies often do not set their own budgets and therefore have little control over the amount of money they can spend from quarter-to-quarter or year-to-year. In addition, these agencies experience political pressure that may dictate the manner in which they spend money. Due to political and budgetary processes and other scheduling delays that may frequently occur relating to the contract or bidding process, some government agency orders may be canceled or substantially delayed, and the receipt of revenues or payments from these agencies may be substantially delayed. In addition, future sales to government agencies will depend on our ability to meet government contracting requirements, certain of which may be onerous or impossible to meet, resulting in our inability to obtain a particular contract. Common requirements in government contracts include bonding requirements, provisions permitting the purchasing agency to modify or terminate at will the contract without penalty, and provisions permitting the agency to perform investigations or audits of our business practices, any of which may limit our ability to enter into new contracts or maintain our current contracts.

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During the year ended December 31, 2016, two customers accounted for approximately 30% of our total revenues. Any material decrease in revenue from these customers, or in the event the Company is unable to replace the revenue with additional customers, our financial condition and results from operations could be materially and adversely affected.

During the year ended December 31, 2016, two customers accounted for approximately 30% or $1,162,000 of our total revenues. If these customers were to significantly reduce its relationship with the Company, or in the event the Company is unable to replace the revenue through the sale of its products to additional customers, the Company’s financial condition and results from operations could be negatively impacted, and such impact would be material.

We occasionally rely on systems integrators to manage our large projects, and if these companies do not perform adequately, we may lose business.

We occasionally act as a subcontractor to systems integrators who manage large projects that incorporate our systems, particularly in foreign countries. We cannot control these companies, and they may decide not to promote our products or may price their services in such a way as to make it unprofitable for us to continue our relationship with them. Further, they may fail to perform under agreements with their customers, in which case we might lose sales to these customers. If we lose our relationships with these companies, our business, financial condition and results of operations may suffer.

We are dependent upon third parties for the successful integration of our products, and/or the launch of our products. Any delay in the integration of our products, or the launch of third party products may materially affect our results from operations and financial condition.

Our current marketing strategy involves the distribution of our products through larger product partners and/or resellers that will either resell our product alongside theirs, OEM a white label version of our products, or sell our products fully integrated into their offerings. Our strategy leaves us largely dependent upon the successful rollout of our products by our distribution partners. We have experienced delays in the rollout of our products due to these factors in 2016 and so far in 2017, and no assurances can be given that we will not experience delays in the future. Any delays negatively affect our results from operations and financial condition.

If the patents we own or license, or our other intellectual property rights, do not adequately protect our products and technologies, we may lose market share to our competitors and our business, financial condition and results of operations would be adversely affected.

Our success depends significantly on our ability to protect our rights to the technologies used in our products. We rely on patent protection, trade secrets, as well as a combination of copyright and trademark laws and nondisclosure, confidentiality and other contractual arrangements to protect our technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. In addition, we cannot be assured that any of our current and future pending patent applications will result in the issuance of a patent to us. The U.S. Patent and Trademark Office (“PTO”) may deny or require significant narrowing of claims in our pending patent applications, and patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or may not be issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the PTO. These proceedings could result in adverse decisions as to the claims included in our patents.

Our issued and licensed patents and those that may be issued or licensed in the future may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products. Additionally, upon expiration of our issued or licensed patents, we may lose some of our rights to exclude others from making, using, selling or importing products using the technology based on the expired patents. We also must rely on contractual rights with the third parties that license technology to us to protect our rights in the technology licensed to us. Although we have taken steps to protect our intellectual property and technology, there is no assurance that competitors will not be able to design around our patents. We also rely on unpatented proprietary technology. We cannot assure you that we can meaningfully protect all our rights in our unpatented proprietary technology or that others will not independently develop substantially equivalent proprietary products or processes or otherwise gain access to our unpatented proprietary technology. We seek to protect our know-how and other unpatented proprietary technology with confidentiality agreements and intellectual property assignment agreements with our employees. However, such agreements may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information. In addition, we rely on the use of registered and common law trademarks with respect to the brand names of some of our products. Our common law trademarks provide less protection than our registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations.

Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. If we fail to apply for intellectual property protection or if we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete more effectively against us, which could adversely affect our competitive position, as well as our business, financial condition and results of operations.

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If third parties claim that we infringe their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinue selling certain products.

Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. We face the risk of claims that we have infringed on third parties’ intellectual property rights. Searching for existing intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patent protection, which is not yet a matter of public knowledge, or claimed trademark rights that have not been revealed through our availability searches. Our efforts to identify and avoid infringing on third parties’ intellectual property rights may not always be successful. Any claims of patent or other intellectual property infringement, even those without merit, could:

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increase the cost of our products;

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be expensive and time consuming to defend;

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result in us being required to pay significant damages to third parties;

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force us to cease making or selling products that incorporate the challenged intellectual property;

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require us to redesign, reengineer or rebrand our products;

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require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property, the terms of which may not be acceptable to us;

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require us to indemnify third parties pursuant to contracts in which we have agreed to provide indemnification to such parties for intellectual property infringement claims;

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divert the attention of our management; and

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result in our customers or potential customers deferring or limiting their purchase or use of the affected products until the litigation is resolved.

In addition, new patents obtained by our competitors could threaten a product’s continued life in the market even after it has already been introduced.

We operate in foreign countries and are exposed to risks associated with foreign political, economic and legal environments and with foreign currency exchange rates.

We have significant foreign operations. As a result, we are exposed to risks, including among others, risks associated with foreign political, economic and legal environments and with foreign currency exchange rates. Our results may be adversely affected by, among other things, changes in government policies with respect to laws and regulations, anti-inflation measures, currency conversions, collection of receivables abroad and rates and methods of taxation.

We depend on key personnel, the loss of any of whom could materially adversely affect future operations.

Our success will depend to a significant extent upon the efforts and abilities of our executive officers and other key personnel. The loss of the services of one or more of these key employees and any negative market or industry perception arising from the loss of such services could have a material adverse effect on us and the trading price of our Common Stock. Our business will also be dependent upon our ability to attract and retain qualified personnel. Acquiring and keeping these personnel could prove more difficult or cost substantially more than estimated and we cannot be certain that we will be able to retain such personnel or attract a high caliber of personnel in the future.

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We face competition from companies with greater financial, technical, sales, marketing and other resources, and, if we are unable to compete effectively with these competitors, our market share may decline and our business could be harmed.

We face competition from other established companies. A number of our competitors have longer operating histories, larger customer bases, significantly greater financial, technological, sales, marketing and other resources than we do. As a result, our competitors may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or client requirements, more quickly develop new products or devote greater resources to the promotion and sale of their products and services than we can. Likewise, their greater capabilities in these areas may enable them to better withstand periodic downturns in the identity management solutions industry and compete more effectively on the basis of price and production. In addition, new companies may enter the markets in which we compete, further increasing competition in the identity management solutions industry.

We believe that our ability to compete successfully depends on a number of factors, including the type and quality of our products and the strength of our brand names, as well as many factors beyond our control. We may not be able to compete successfully against current or future competitors, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of new products, any of which would adversely impact our results of operations and financial condition.

Risks Related to Our Securities

Our Common Stock is subject to “penny stock” rules.

Our Common Stock is currently defined as a “penny stock” under Rule 3a51-1 promulgated under the Exchange Act. “Penny stocks” are subject to Rules 15g-2 through 15g-7 and Rule 15g-9, which impose additional sales practice requirements on broker-dealers that sell penny stocks to persons other than established customers and institutional accredited investors. Among other things, for transactions covered by these rules, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Consequently, these rules may affect the ability of broker-dealers to sell our Common Stock and affect the ability of holders to sell their shares of our Common Stock in the secondary market. To the extent our Common Stock is subject to the penny stock regulations, the market liquidity for our shares will be adversely affected.

Our stock price has been volatile, and your investment in our Common Stock could suffer a decline in value.

There has been significant volatility in the market price and trading volume of equity securities, which is unrelated to the financial performance of the companies issuing the securities. These broad market fluctuations may negatively affect the market price of our Common Stock. You may not be able to resell your shares at or above the price you pay for those shares due to fluctuations in the market price of our Common Stock caused by changes in our operating performance or prospects and other factors.

Some specific factors that may have a significant effect on our Common Stock market price include:

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actual or anticipated fluctuations in our operating results or future prospects;

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our announcements or our competitors’ announcements of new products;

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the public’s reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission (the “ SEC”);

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strategic actions by us or our competitors, such as acquisitions or restructurings;

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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

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changes in accounting standards, policies, guidance, interpretations or principles;

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changes in our growth rates or our competitors’ growth rates;

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developments regarding our patents or proprietary rights or those of our competitors;

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our inability to raise additional capital as needed;

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substantial sales of Common Stock underlying warrants and preferred stock;

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concern as to the efficacy of our products;

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changes in financial markets or general economic conditions;

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sales of Common Stock by us or members of our management team; and

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changes in stock market analyst recommendations or earnings estimates regarding our Common Stock, other comparable companies or our industry generally.

Our future sales of our Common Stock could adversely affect its price and our future capital-raising activities could involve the issuance of equity securities, which would dilute shareholders’ investments and could result in a decline in the trading price of our Common Stock.

We may sell securities in the public or private equity markets if and when conditions are favorable, even if we do not have an immediate need for additional capital at that time. Sales of substantial amounts of our Common Stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our Common Stock and our ability to raise capital. We may issue additional Common Stock in future financing transactions or as incentive compensation for our executive management and other key personnel, consultants and advisors. Issuing any equity securities would be dilutive to the equity interests represented by our then-outstanding shares of Common Stock. The market price for our Common Stock could decrease as the market takes into account the dilutive effect of any of these issuances. Furthermore, we may enter into financing transactions at prices that represent a substantial discount to the market price of our Common Stock. A negative reaction by investors and securities analysts to any discounted sale of our equity securities could result in a decline in the trading price of our Common Stock.

The holders of our preferred stock have certain rights and privileges that are senior to our Common Stock, and we may issue additional shares of preferred stock without stockholder approval that could have a material adverse effect on the market value of the Common Stock.

Our Board of Directors (“Board”) has the authority to issue a total of up to four million shares of preferred stock and to fix the rights, preferences, privileges, and restrictions, including voting rights, of the preferred stock, which typically are senior to the rights of the Common Stockholders, without any further vote or action by the Common Stockholders. The rights of our Common Stockholders will be subject to, and may be adversely affected by, the rights of the holders of the preferred stock that have been issued, or might be issued in the future. Preferred stock also could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. This could delay, defer, or prevent a change in control. Furthermore, holders of preferred stock may have other rights, including economic rights, senior to the Common Stock. As a result, their existence and issuance could have a material adverse effect on the market value of the Common Stock. We have in the past issued and may from time to time in the future issue, preferred stock for financing or other purposes with rights, preferences, or privileges senior to the Common Stock. As of December 31, 2016, we had four series of preferred stock outstanding, Series B Convertible Redeemable Preferred Stock (“Series B Preferred”), Series E Convertible Redeemable Preferred Stock (“Series E Preferred”), Series F Convertible Redeemable Preferred Stock (“Series F Preferred”) and Series G Convertible Redeemable Preferred Stock (“Series G Preferred”).

The provisions of our Series B Preferred prohibit the payment of dividends on our Common Stock unless the dividends on our preferred shares are first paid. In addition, upon a liquidation, dissolution or sale of our business, the holders of our Series B Preferred will be entitled to receive, in preference to any distribution to the holders of Common Stock, initial distributions of $2.50 per share, plus all accrued but unpaid dividends. As of December 31, 2016, we had cumulative undeclared dividends on our Series B Preferred of approximately $8,000.

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The provisions of our Series E Preferred prohibit the payment of dividends on our Common Stock unless the dividends on our preferred shares are first paid. In addition, upon a liquidation, dissolution or sale of our business, the holders of our Series E Preferred will be entitled to receive, in preference to any distribution to the holders of Series F Preferred, Series G Preferred and Common Stock, initial distributions of $1,000 per share, plus all accrued but unpaid dividends. At December 31, 2016, we had accrued $0 in Series E Preferred dividends. The provisions of our Series E Preferred also limit indebtedness of the Company to any commercial bank loan entered into by the Company to an amount not to exceed $2.0 million; and monies borrowed under credit lines of the Company existing on the Issuance Date in an amount not to exceed $6.0 million.

The provisions of our Series F Preferred prohibit the payment of dividends on our Common Stock unless the dividends on our preferred shares are first paid. In addition, upon a liquidation, dissolution or sale of our business, the holders of our Series F Preferred will be entitled to receive, in preference to any distribution to the holders of Series G Preferred and Common Stock, initial distributions of $1,000 per share, plus all accrued but unpaid dividends. At December 31, 2016, we had accrued $0 in Series F Preferred dividends.

The provisions of our Series G Preferred prohibit the payment of dividends on our Common Stock unless the dividends on our preferred shares are first paid. In addition, upon a liquidation, dissolution or sale of our business, the holders of our Series G Preferred will be entitled to receive, in preference to any distribution to the holders of Common Stock, initial distributions of $1,000 per share, plus all accrued but unpaid dividends. At December 31, 2016, we had accrued $0 in Series G Preferred dividends.

Certain large shareholders may have certain personal interests that may affect the Company.

As a result of the shares issued to Goldman Capital Management and related entities controlled by Neal Goldman, a member of our Board of Directors (together, “Goldman”), Goldman beneficially owns, in the aggregate, approximately 36.6% of the Company’s outstanding voting securities. As a result, Goldman has the potential ability to exert influence over both the actions of the Board of Directors and the outcome of issues requiring approval by the Company’s shareholders. This concentration of ownership may have effects such as delaying or preventing a change in control of the Company that may be favored by other shareholders or preventing transactions in which shareholders might otherwise recover a premium for their shares over current market prices.

Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of the Company.

Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes preferred stock, which carries special rights, including voting and dividend rights. With these rights, preferred stockholders could make it more difficult for a third party to acquire us.

We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203, “interested stockholder” means, generally, someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203.

We do not expect to pay cash dividends on our Common Stock for the foreseeable future.

We have never paid cash dividends on our Common Stock and do not anticipate that any cash dividends will be paid on the Common Stock for the foreseeable future. The payment of any cash dividend by us will be at the discretion of our Board of Directors and will depend on, among other things, our earnings, capital, regulatory requirements and financial condition. Furthermore, the terms of our Series B Preferred and Series E Preferred directly limit our ability to pay cash dividends on our Common Stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters are located in San Diego, California where we occupy 9,927 square feet of office space. This facility is leased through October 2017 at a cost of approximately $18,000 per month. In addition to our corporate headquarters, we also occupied the following spaces at December 31, 2016:

●

1,508 square feet in Ottawa, Province of Ontario, Canada, at a cost of approximately $3,000 per month until the expiration of the lease on March 31, 2021. This lease was renewed in April 2016 for a five-year period ending on March 31, 2021. Renewal terms were substantially unchanged from the existing lease;

●

8,045 square feet in Portland, Oregon, at a cost of approximately $16,000 per month until the expiration of the lease on October 31, 2018; and

●

304 square feet of office space in Mexico City, Mexico, at a cost of approximately $3,000 per month until the expiration of the lease on November 30, 2017.

ITEM 3. LEGAL PROCEEDINGS

There is currently no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our Common Stock does not trade on an established securities exchange. Our Common Stock is quoted under the symbol “IWSY” on the OTCQB marketplace. The following table sets forth the high and low sale prices for our Common Stock for each quarter in 2016 and 2015:

2016 Fiscal Quarters	High	Low
First Quarter	$1.49	$0.85
Second Quarter	$1.52	$1.06
Third Quarter	$1.47	$1.12
Fourth Quarter	$1.35	$0.95

2015 Fiscal Quarters	High	Low
First Quarter	$2.36	$1.50
Second Quarter	$1.89	$1.39
Third Quarter	$2.04	$1.41
Fourth Quarter	$1.64	$.90

Holders

As of March 20, 2017, we had approximately 187 holders of record of our Common Stock. A significant number of our shares were held in street name and, as such, we believe that the actual number of beneficial owners is significantly higher.

Stock Performance Graph

The following graph compares the cumulative total shareholder return on our Common Stock over the five-year period ending December 31, 2016 with the cumulative total returns during the same period on the NASDAQ Composite Index and the S&P Information Technology Index. The graph assumes that $100 was invested on December 31, 2011 in our Common Stock and in the shares represented by each of the other indices, and that all dividends were reinvested.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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	12/31/11	12/31/12	12/31/13	12/31/14	12/31/15	12/31/16
ImageWare Systems, Inc.	$100.00	$106.25	$241.25	$300.00	$162.50	$166.25
NASDAQ Composite Index	$100.00	$115.91	$160.32	$181.80	$192.21	$206.63
S&P Information Technology	$100.00	$114.82	$147.47	$177.13	$187.63	$213.61

The stock performance graph above shall not be deemed incorporated by reference into any filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate such information by reference, and shall not otherwise be deemed filed under such Acts.

Dividends

We have never declared or paid cash dividends on our Common Stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant.

As of December 31, 2016, 2015 and 2014, the Company had cumulative undeclared dividends of approximately $8,000 relating to our Series B Preferred. At December 31, 2016 and 2015 we had cumulative undeclared dividends of $0 and $240,000, respectively relating to our Series E Preferred. As of December 31, 2016 and 2015 we had cumulative undeclared dividends of $0 relating to our Series F Preferred and Series G Preferred.

Securities Authorized for Issuance under Equity Compensation Plans

For a discussion of our equity compensation plans, please see Item 12 of this Annual Report.

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ITEM 6. SELECTED FINANCIAL DATA

The following data has been derived from our audited consolidated financial statements, including the consolidated balance sheets at December 31, 2016 and 2015 and the related consolidated statements of operations for the three years ended December 31, 2016 and related notes appearing elsewhere in this report. The statement of operations data for the years ended December 31, 2013 and 2012 and the balance sheet data as of December 31, 2014, 2013 and 2012 are derived from our audited consolidated financial statements that are not included in this report. You should read the selected financial data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this report.

Statement of Operations Data:	Year Ended December 31,
(In thousands, except share and per share data)	2016	2015	2014	2013	2012
Revenues:
Product	$1,249	$2,192	$1,634	$2,686	$1,145
Maintenance	2,563	2,577	2,525	2,618	2,806
	3,812	4,769	4,159	5,304	3,951
Cost of revenues:
Product	243	1,117	257	319	227
Maintenance	827	827	735	771	975
Gross profit	2,742	2,825	3,167	4,214	2,749

Operating expenses:
General and administrative	3,722	3,437	3,818	3,378	3,430
Sales and marketing	3,021	2,791	2,471	2,129	1,830
Research and development	5,332	4,643	4,495	3,869	3,180
Depreciation and amortization	129	164	179	125	69
	12,204	11,035	10,963	9,501	8,509
Loss from operations	(9,462)	(8,210)	(7,796)	(5,287)	(5,760)

Interest expense	245	447	416	221	18
Change in fair value of derivative liabilities	—	—	—	4,776	4,712
Other income, net	(201)	(145)	(297)	(443)	(322)
Loss before income taxes	(9,506)	(8,512)	(7,915)	(9,841)	(10,168)

Income tax expense	21	22	25	8	22
Net loss	$(9,527)	$(8,534)	$(7,940)	$(9,849)	$(10,190)
Preferred dividends	(1,347)	(1,065)	(51)	(51)	(51)
Net loss available to common shareholders	$(10,874)	$(9,599)	$(7,991)	$(9,900)	$(10,241)

Basic and diluted loss per common share
Net loss	$(0.10)	$(0.09)	$(0.09)	$(0.12)	$(0.14)
Preferred dividends	(0.02)	(0.01)	(—)	(—)	(—)
Basic and diluted loss per share available to common shareholders	$(0.12)	$(0.10)	$(0.09)	$(0.12)	$(0.14)
Basic and diluted weighted-average shares outstanding	94,426,783	93,786,079	91,795,971	81,231,962	70,894,916

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Balance Sheet Data:	December 31,
(In thousands)	2016	2015	2014	2013	2012
ASSETS
Current Assets:
Cash	$1,586	$3,352	$218	$2,363	$4,225
Accounts receivable, net of allowance for doubtful accounts	287	349	266	302	328
Inventory, net	23	46	916	505	262
Other current assets	135	69	86	148	86
Total Current Assets	2,031	3,816	1,486	3,318	4,901

Property and equipment, net	93	162	211	245	150
Other assets	34	98	153	395	44
Intangible assets, net of accumulated amortization	106	117	144	172	200
Goodwill	3,416	3,416	3,416	3,416	3,416
Total Assets	$5,680	$7,609	$5,410	$7,546	$8,711

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current Liabilities:
Accounts payable	$425	$198	$459	$486	$759
Deferred revenue	1,045	1,059	1,827	1,662	1,561
Accrued expenses	1,047	1,149	1,013	924	1,266
Derivative liabilities	—	—	—	57	—
Convertible lines of credit to related parties, net	2,528	—	—	55	65
Total Current Liabilities	5,045	2,406	3,299	3,184	3,651

Convertible secured notes payable, net of discount	—	—	1,311	—	—
Derivative liabilities	—	—	—	—	2,244
Pension obligation	1,895	1,511	1,834	1,031	401
Other long-term liabilities	—	—	—	—	72
Total Liabilities	6,940	3,917	6,444	4,215	6,368

Shareholders’ Equity (Deficit):
Preferred stock, authorized 4,000,000 shares:
Series B Convertible Redeemable Preferred Stock, $0.01 par value	2	2	2	2	2
Series E Convertible Redeemable Preferred stock, $0.01 par value	—	—	—	—	—
Series F Convertible Redeemable Preferred stock, $0.01 par value	—	—	—	—	—
Series G Convertible Redeemable Preferred stock, $0.01 par value	—	—	—	—	—
Common Stock, $0.01 par value	917	940	934	874	765
Additional paid-in capital	156,195	149,902	135,982	131,652	120,182
Treasury stock, at cost	(64)	(64)	(64)	(64)	(64)
Accumulated other comprehensive loss	(1,543)	(1,195)	(1,594)	(830)	(139)
Accumulated deficit	(156,767)	(145,893)	(136,294)	(128,303)	(118,403)
Total Shareholders’ Equity (Deficit)	(1,260)	3,692	( 1,034)	3,331	2,343

Total Liabilities and Shareholders’ Equity (Deficit)	$5,680	$7,609	$5,410	$7,546	$8,711

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-K. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including (without limitation) the disclosures made under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” and in the audited consolidated financial statements and related notes included in this Annual Report on Form 10-K.

Overview

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Critical Accounting Estimates

The discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements in accordance with GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during a fiscal period. The Securities and Exchange Commission (“SEC”) considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application.

Significant estimates include the allowance for doubtful accounts receivable, inventory carrying values, deferred tax asset valuation allowances, accounting for loss contingencies, recoverability of goodwill and acquired intangible assets and amortization periods, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, assumptions used in the application of fair value methodologies to calculate the fair value of derivative liabilities, revenue and cost of revenues recognized under the percentage of completion method and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations.

The following are our critical accounting policies because we believe they are both important to the portrayal of our financial condition and results of operations and require critical management judgments and estimates about matters that are uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected.

Revenue Recognition. Our revenue recognition policy is significant because our revenue is a key component of our consolidated results of operations. We recognize revenue from the following major revenue sources:

●

Long-term fixed-price contracts involving significant customization;

●

Fixed-price contracts involving minimal customization;

●

Software licensing;

●

Sales of computer hardware and identification media; and

●

Post-contract customer support (“PCS”).

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The Company’s revenue recognition policies are consistent with U.S. GAAP including Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition”, ASC 605-35 “Revenue Recognition, Construction-Type and Production-Type Contracts”, “Securities and Exchange Commission Staff Accounting Bulletin 104," and ASC 605-25, “Revenue Recognition, Multiple Element Arrangements”. Accordingly, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured.

The Company recognizes revenue and profit as work progresses on long-term, fixed-price contracts involving significant amounts of hardware and software customization using the percentage of completion method based on costs incurred to date, compared to total estimated costs upon completion. The primary components of costs incurred are third party software and direct labor cost including fringe benefits. Revenues recognized in excess of amounts billed are classified as current assets under “Costs and estimated earnings in excess of billings on uncompleted contracts”. Amounts billed to customers in excess of revenue recognized are classified as current liabilities under “Billings in excess of costs and estimated earnings on uncompleted contracts”. Revenue from contracts for which the Company cannot reliably estimate total costs, or there are not significant amounts of customization, are recognized upon completion. For contracts that require significant amounts of customization that the Company accounts for under the completed contract method of revenue recognition, the Company defers revenue recognition until customer acceptance is received. For contracts containing either extended or dependent payment terms, revenue recognition is deferred until such time as payment has been received by the Company. The Company also generates non-recurring revenue from the licensing of its software. Software license revenue is recognized upon the execution of a license agreement, upon deliverance, when fees are fixed and determinable, when collectability is probable and when all other significant obligations have been fulfilled. The Company also generates revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer. The Company’s revenue from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant obligations remain and collectability of the related receivable is probable. Amounts collected in advance for maintenance services are included in current liabilities under "Deferred revenues". Sales tax collected from customers is excluded from revenue.

Allowance for Doubtful Accounts. We provide an allowance for our accounts receivable for estimated losses that may result from our customers’ inability to pay. We determine the amount of allowance by analyzing historical losses, customer concentrations, customer creditworthiness, current economic trends, and the age of the accounts receivable balances and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.

Valuation of Goodwill, Other Intangible and Long-Lived Assets. The Company accounts for its intangible assets under the provisions of ASC 350, “Intangibles - Goodwill and Other”. In accordance with ASC 350, intangible assets with a definite life are analyzed for impairment under ASC 360-10-05 and intangible assets with an indefinite life are analyzed for impairment under ASC 360. In accordance with ASC 350, goodwill, or the excess of cost over fair value of net assets acquired is tested for impairment using a fair value approach at the “reporting unit” level. A reporting unit is the operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Company’s reporting unit is at the entity level. The Company recognizes an impairment charge for any amount by which the carrying amount of a reporting unit’s goodwill exceeds its fair value. The Company uses fair value methodologies to establish fair values.

We assess impairment of goodwill and identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

●

Significant underperformance relative to historical or expected future operating results;

●

Significant changes in the manner of our use of the acquired assets or the strategy of our overall business; and

●

Significant negative industry or economic trends.

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The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment. The Company performs its annual impairment test in the fourth quarter of each year. A two-step impairment test is used to first identify potential goodwill impairment and then measure the amount of goodwill impairment loss, if any. The first step was conducted by determining and comparing the fair value, employing the market approach, of the Company’s reporting units to the carrying value of the reporting unit. The Company determined that its only reporting unit is Identity Management. Based on the results of this impairment test, the Company determined that its goodwill assets were not impaired as of December 31, 2016.

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets.

There are many management assumptions and estimates underlying the determination of an impairment loss, and estimates using different, but reasonable, assumptions could produce significantly different results. Significant assumptions include estimates of future levels of revenues and operating expenses. Therefore, the timing and recognition of impairment losses by us in the future, if any, may be highly dependent upon our estimates and assumptions. There can be no assurance that goodwill impairment will not occur in the future.

Stock-Based Compensation. At December 31, 2016, the Company had one stock-based compensation plan for employees and nonemployee directors, which authorize the granting of various equity-based incentives including stock options and restricted stock.

The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, “Compensation – Stock Compensation”. The fair value of stock options granted is recognized to expense over the requisite service period. Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Stock-based compensation expense is reported in general and administrative, sales and marketing, engineering and customer service expenses based upon the departments to which substantially all of the associated employees report and credited to additional paid-in capital.

ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. For the years ended December 31, 2016, 2015 and 2014, the Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Company’s Common Stock. Historical volatility factors utilized in the Company’s Black-Scholes computations for options granted during the years ended December 31, 2016, 2015 and 2014 ranged from 65% to 116%. The Company has elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin No. 110. The expected term used by the Company to value the grants issued in 2016, 2015 and 2014 as computed by this method was 5.17 years. The effect of the difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations were 2.6% for the years ended December 31, 2016, 2015 and 2014. Dividend yield is zero as the Company does not expect to declare any dividends on the Company’s common shares in the foreseeable future.

In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has estimated an annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. The Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience.

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Income Taxes. The Company accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes.” Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established when necessary based on the weight of available evidence, if it is considered more likely than not that all or some portion of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.

ASC 740-10 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.

We recognize and measure uncertain tax positions in accordance with U.S. GAAP, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Any tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. U.S. GAAP further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the quarter of such change. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We file annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our analysis of income tax reserves reflects the most likely outcome. We adjust these reserves, if any, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash.

Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the Company’s provision for income taxes. No assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provisions and accruals. The Company adjusts these items in light of changing facts and circumstances. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.

The Internal Revenue Code (the “Code”) limits the availability of certain tax credits and net operating losses that arose prior to certain cumulative changes in a corporation’s ownership resulting in a change of control of the Company. The Company’s use of its net operating loss carryforwards and tax credit carryforwards will be significantly limited because the Company believes it underwent “ownership changes,” as defined under Section 382 of the Internal Revenue Code, in 1991, 1995, 2000, 2003, 2004, 2011 and 2012, though the Company has not performed a study to determine the limitation. The Company has reduced its deferred tax assets to zero relating to its federal and state research credits because of such limitations. The Company continues to disclose the tax effect of the net operating loss carryforwards at their original amount as the actual limitation has not yet been quantified. The Company has also established a full valuation allowance for substantially all deferred tax assets due to uncertainties surrounding its ability to generate future taxable income to realize these assets. Since substantially all deferred tax assets are fully reserved, future changes in tax benefits will not impact the effective tax rate. Management periodically evaluates the recoverability of the deferred tax assets. If it is determined at some time in the future that it is more likely than not that deferred tax assets will be realized, the valuation allowance would be reduced accordingly at that time.

Fair-Value Measurements. The Company accounts for fair value measurements in accordance with ASC 820, “Fair Value Measurements and Disclosures”, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

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ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

	Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

	Level 2	Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

	Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Assessing the significance of a particular input to the fair value measurement requires judgment, considering factors specific to the asset or liability. Determining whether a fair value measurement is based on Level 1, Level 2, or Level 3 inputs is important because certain disclosures are applicable only to those fair value measurements that use Level 3 inputs. The use of Level 3 inputs may include information derived through extrapolation or interpolation which involves management assumptions.

For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements.

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Results of Operations

This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes contained elsewhere in this Annual Report.

Comparison of Results for Fiscal Years Ended December 31, 2016, 2015 and 2014

Product Revenue

Net Product Revenue (dollars in thousands)	Year Ended December 31, 2016			$ Change			% Change	Year Ended December 31, 2015			$ Change			% Change		Year Ended December 31, 2014

Software and royalties	$	857			(744	)	(46)%	$	1,601		$	288		22	%	$	1,313
Percentage of total net product revenue		69	%						73	%							80	%
Hardware and consumables	$	68			34		100%	$	34		$	(76	)	(69)	%	$	110
Percentage of total net product revenue		5	%						2	%							7	%
Services	$	324			(233	)	(42)%	$	557		$	346		164	%	$	211
Percentage of total net product revenue		26	%						25	%							13	%
Total net product revenue	$	1,249			(943	)	(43)%	$	2,192		$	558		34	%	$	1,634

Software and royalty revenue decreased 46% or approximately $744,000 during the year ended December 31, 2016 as compared to the corresponding period in 2015. This decrease is due to lower project related sales of our identity management software of approximately $542,000, lower sales of boxed identity management software sold through our distribution channel of approximately $93,000, lower royalty revenue of approximately $84,000 and lower law enforcement project revenue of approximately $25,000.

Software and royalty revenue increased 22% or approximately $288,000 during the year ended December 31, 2015 as compared to the corresponding period in 2014. This increase is due to the recognition of identification software license revenue principally attributable to two significant customers and to a lesser extent identification software royalties and lower law enforcement project related revenue, offset by lower sales of boxed identity management software sold through our distribution channel.

Revenue from the sale of hardware and consumables increased 100% or approximately $34,000 during the year ended December 31, 2016 as compared to the corresponding period in 2015. This increase resulted from higher sales of hardware and consumables in project solutions.

During the 2015 period, revenue from the sale of hardware and consumables decreased 69% or approximately $76,000 as compared to the corresponding period in 2014. This decrease resulted from lower revenues from project solutions containing hardware and consumable components.

Services revenue is comprised primarily of software integration services, system installation services and customer training. Such revenue decreased 42% or approximately $233,000 during the year ended December 31, 2016 as compared to the corresponding period in 2015, due primarily to the completion of the service element in identity management project solutions in the 2015 period.

Services revenue increased 164% or approximately $346,000 during the year ended December 31, 2015 as compared to the corresponding period in 2014, due primarily to the completion of the service elements in certain identity management project solutions.

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We believe that the period-to-period fluctuations of identity management software revenue in project-oriented solutions are largely due to the timing of government procurement with respect to the various programs we are pursuing. Although no assurances can be given, based on management’s current visibility into the timing of potential government procurements and potential partnerships and current pilot programs, we believe that we will see an increase in government procurement and implementations with respect to identity management initiatives during 2017; however, government procurement initiatives, implementations and pilots are frequently delayed and extended, as was the case in the year ended December 31, 2016, and we cannot predict the timing of such initiatives.

During the year ended December 31, 2016, we continued to accelerate our efforts to move the Biometric Engine into cloud and mobile markets, and expanded our end-user market into non-government sectors including commercial, consumer and healthcare applications. In November 2016, we introduced our new GoVerifyID Enterprise suite for customers that want to add biometric identity verification to their Microsoft infrastructure. While we anticipated results from these initiatives during the 2016 fiscal year, many of those initiatives were delayed to 2017. As a result, we anticipate that we will see positive developments from these efforts beginning in the first half of 2017, which management believes should help us to begin to smooth out our period-to-period fluctuations in revenue and enable us to provide better visibility into the timing of future revenues.

Maintenance Revenue

Net Maintenance Revenue (dollars in thousands)	Year Ended December 31, 2016			$ Change			% Change		Year Ended December 31, 2015			$ Change			% Change			Year Ended December 31, 2014

Maintenance Revenue		$	2,563		(14	)		(1)%		$	2,577		$	52		2	%		$	2,525

Maintenance revenue was approximately $2,563,000 for the year ended December 31, 2016, as compared to approximately $2,577,000 and $2,525,000 for the corresponding periods in 2015 and 2014, respectively. For the year ended December 31, 2016, identity management maintenance revenue was approximately $1,181,000 as compared to $1,114,000 for the comparable period in 2015. The increase in identity management maintenance revenue of approximately $67,000 reflects the expansion of our installed base. Law enforcement maintenance revenue was approximately $1,382,000 for the twelve months ended December 2016 as compared to $1,463,000 for the comparable period in 2015. This decrease is primarily due to the expiration of certain law enforcement maintenance contracts.

For the year ended December 31, 2015, maintenance revenue increased approximately $52,000 as compared to the comparable period in 2014 due primarily the expansion on the Company’s identity management installed base.

We anticipate growth of our maintenance revenue through the retention of existing customers combined with the continued expansion of our installed base resulting from the completion of project-oriented work, however we cannot predict the timing of this anticipated growth.

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Cost of Product Revenue

Cost of Product Revenue (dollars in thousands)	Year Ended December 31, 2016			$ Change			% Change		Year Ended December 31, 2015			$ Change			% Change			Year Ended December 31, 2014

Software and royalties	$	78			(11	)	(12%	)	$	89		$	23			35	%	$	66
Percentage of software and royalty product revenue		9%								6	%								5	%
Hardware and consumables	$	43			(2	)	(4%	)	$	45		$	(46	)		(51)	%	$	91
Percentage of hardware and consumables product revenue		63	%							132	%								83	%
Services	$	122			(861	)	(88%	)	$	983		$	883			883	%	$	100
Percentage of services product revenue		39	%							176	%								47	%
Total cost of product revenue	$	243			(874	)	(78%	)	$	1,117		$	860			335	%	$	257
Percentage of total product revenue		20	%							51	%								16	%

The cost of software and royalty product revenue decreased 12% or approximately $11,000 during the year ended December 31, 2016 as compared to the corresponding period in 2015. The cost of software and royalty revenue increased approximately $23,000 during the year ended December 31, 2015 as compared to the corresponding period in 2014. This increase is due primarily to increases in third party software costs attributable to higher sales of software. In addition to changes in costs of software and royalty product revenue caused by revenue level fluctuations, costs of products can vary as a percentage of product revenue from period to period depending upon level of software customization and third party software license content included in product sales during a given period.

The cost of product revenue for our hardware and consumable sales during the year ended December 31, 2016 decreased approximately $2,000 as compared to the corresponding period in 2015 despite higher hardware and consumable revenue of approximately $34,000 primarily due to the 2015 period containing approximately $21,000 in hardware equipment written off due to substantial doubt as to recoverability. During the year ended December 31, 2015, our cost of product revenue for our hardware and consumable sales decreased by approximately $46,000, as compared to the corresponding period in 2014, primarily due to increased sales of hardware and consumable during the year ended December 31, 2015.

Cost of services revenue decreased 88% or approximately $861,000 during the year ended December 31, 2016 as compared to the corresponding period in 2015. This decrease reflects higher professional service revenue of approximately $322,000 due to the positive impact of non-recurring revenue received from one customer in the 2015 period combined with higher level and more costly service resources utilized in the generation of such non-recurring revenue during the year ended December 31, 2015 as compared to the corresponding period in 2016. Also contributing to this decrease was the write-off of $261,000 in capitalized labor costs due to doubts as to the recoverability of such costs in the 2015 period. Costs of service revenue can vary depending upon the complexity of the project solution and the mix of labor resources utilized to complete the service element.

Cost of services revenue increased 833% or approximately $883,000 during the year ended December 31, 2015 as compared to the corresponding period in 2014. This uncharacteristic increase reflects higher professional service revenue of approximately $322,000 due to the positive impact of non-recurring revenue received from one customer in the 2015 period combined with higher level and more costly service resources utilized in the generation of such non-recurring revenue during the year ended December 31, 2015 as compared to the corresponding period in 2014. Also contributing to this uncharacteristic increase is the write-off of $261,000 in capitalized labor costs due to doubts as to the recoverability of such costs. Costs of service revenue can vary depending upon the complexity of the project solution and the mix of labor resources utilized to complete the service element.

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Cost of Maintenance Revenue

Maintenance cost of revenue (dollars in thousands)	Year Ended December 31, 2016			$ Change		% Change			Year Ended December 31, 2015			$ Change		% Change		Year Ended December 31, 2014

Total maintenance cost of revenue	$	827		$	—		0	%	$	827		$	92	(13	)%	$	735
Percentage of total maintenance revenue		32	%							32	%						29	%

Cost of maintenance revenue increased 13% or approximately $92,000 during the year ended December 31, 2015 as compared to the corresponding period in 2014 resulting principally from higher departmental expenses driven primarily by headcount increases for the year ended December 31, 2015 as compared to the corresponding period in 2014.

Product Gross Profit

Product gross profit (dollars in thousands)	Years Ended December 31, 2016	$ Change	% Change	Years Ended December 31, 2015	$ Change	% Change	Years Ended December 31, 2014

Software and royalties	$779	$(733)	(48)%	$1,512	$265	21%	$1,247
Percentage of software and royalty product revenue	91%			94%			95%
Hardware and consumables	$25	$36	327%	$(11)	$(30)	(158)%	$19
Percentage of hardware and consumables product revenue	37%			(32)%			17%
Services	$202	$628	147%	$(426)	$(537)	(484)%	$111
Percentage of services product revenue	61%			(77)%			53%
Total product gross profit	$1,006	$(69)	(6)%	$1,075	$(302)	(22)%	$1,377
Percentage of total product revenue	81%			49%			84%

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Software and royalty gross profit decreased 48% or approximately $733,000 for the year ended December 31, 2016, as compared to the corresponding period in 2015, due primarily to lower software and royalty product revenue of approximately $744,000. In addition to changes in costs of software and royalty product revenue caused by revenue level fluctuations, costs of products can vary as a percentage of product revenue from period to period depending upon level of software customization and third party software license content included in product sales during a given period.

Software and royalty gross profit increased 21% or approximately $265,000 for the year ended December 31, 2015, as compared to the corresponding period in 2014, due primarily to higher software and royalty product revenue of approximately $288,000. In addition to changes in costs of software and royalty product revenue caused by revenue level fluctuations, costs of products can vary as a percentage of product revenue from period to period depending upon level of software customization and third party software license content included in product sales during a given period.

Hardware and consumables gross profit increased approximately $36,000 for the year ended December 31, 2016, as compared to the 2015 period. This increase resulted from higher sales of hardware and consumables in project solutions of approximately $34,000 combined with corresponding lower cost of hardware and consumables product revenue of $2,000 for the year ended December 31, 2016 as compared to the corresponding period in 2015.

Hardware and consumables gross profit decreased approximately $30,000 for the year ended December 31, 2015, as compared to the 2014 period. This decrease resulted from lower sales of hardware and consumables in project solutions of approximately $76,000 combined with corresponding lower cost of hardware and consumables product revenue of $66,000 for the year ended December 31, 2015 as compared to the corresponding period in 2014.

Services gross profit increased 147% or approximately $628,000 during the year ended December 31, 2016, as compared to the corresponding period in 2015, due to lower service revenue of approximately $233,000 combined with lower cost of service revenue of approximately $861,000 for the year ended December 31, 2016 as compared to the corresponding period in 2015. The decrease in service revenue and uncharacteristically high cost of service revenue in the 2015 period reflect the impact of non-recurring revenue received from one customer in the 2015 period combined with significant costs incurred from implementation challenges. The Company’s contract with this one customer in the 2015 period also included software product revenue of approximately $440,000, offset by minimal costs. Also contributing to the services gross profit increase was the write-off of $261,000 in capitalized labor costs due to doubts as to the recoverability of such costs in the 2015 period.

Services gross profit decreased 484% or approximately $537,000 during the year ended December 31, 2015, as compared to the corresponding period in 2014, due primarily to higher service revenue of approximately $346,000 offset by higher cost of service revenue of approximately $622,000 for the year ended December 31, 2015 as compared to the corresponding period in 2014. The increase in service revenue and uncharacteristically high cost of service revenue reflects the impact of non-recurring revenue received from one customer in the 2015 period due to significant costs incurred from implementation challenges. The Company’s contract with this one customer in the 2015 period also included software product revenue of approximately $440,000, offset by minimal costs. Also contributing to the services gross profit decrease was the write-off of $261,000 in capitalized labor costs due to doubts as to the recoverability of such costs.

Maintenance Gross Profit

Maintenance gross profit (dollars in thousands)	Year Ended December 31, 2016			$ Change			% Change		Year Ended December 31, 2015				$ Change				% Change		Year Ended December 31, 2014

Total maintenance gross profit	$	1,736			(14	)	(1	)%		$	1,750			$	(40	)	(2	)%		$	1,790
Percentage of total maintenance revenue		68	%								68	%									71

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Gross margins related to maintenance revenue were 68% for the years ended December 31, 2016 and 2015, respectively. The decrease of approximately $14,000 for the 2016 year as compared to the corresponding 2015 period primarily resulted from lower maintenance revenue of approximately $14,000 for the year ended December 31, 2016 as compared to the corresponding period in 2015. Gross margins related to maintenance revenue were 68% and 71%, respectively, for the years ended December 31, 2015 and 2014. The dollar decrease of approximately $40,000 for the 2015 year as compared to the corresponding 2014 period primarily resulted from higher maintenance revenue of approximately $52,000 for the year ended December 31, 2015 as compared to the corresponding period in 2014 offset by higher cost of maintenance revenue of approximately $92,000 for the 2015 year as compared to the 2014 year.

Operating Expense

Operating Expense (dollars in thousands)	Year Ended December 31,			$			%			Year Ended December 31,			$			%			Year Ended December 31,
Operating Expense (dollars in thousands)	2016			Change			Change			2015			Change			Change			2014

General and administrative	$	3,722		$	285			8	%	$	3,437		$	(381	)		(10)	%	$	3,818
Percentage of total net revenue		98	%								72	%								92	%
Sales and marketing	$	3,021		$	230			8	%	$	2,791		$	320			13	%	$	2,471
Percentage of total net revenue		79	%								59	%								59	%
Research and development	$	5,332		$	689			15	%	$	4,643		$	148			3	%	$	4,495
Percentage of total net revenue		140	%								97	%								108	%
Depreciation and amortization	$	129		$	(35	)		(22)	%	$	164		$	(15	)		(8)	%	$	179
Percentage of total net revenue		3	%								3	%								4	%

General and Administrative Expense

General and administrative expense is comprised primarily of salaries and other employee-related costs for executive, financial, and other infrastructure personnel. General legal, accounting and consulting services, insurance, occupancy and communication costs are also included with general and administrative expense.

The dollar increase of approximately $285,000 in general and administrative expense for the year ended December 31, 2016, as compared to the corresponding period in 2015, is comprised of the following major components:

●

Increase in personnel related expense of approximately $331,000 due to head count increases;

●

Decrease in professional fees including consulting services and contract services of approximately $101,000 due primarily to decreases in patent related expenses of approximately $134,000, decreases in legal fees of approximately $14,000, decreases in various consulting, contract services and corporate expenses of approximately $34,000, offset by increases in public/inventory relation fees of approximately $35,000 and auditing fees of approximately $46,000;

●

Increase in stock-based compensation expense of approximately $96,000; and

●

Decrease in travel, insurances, licenses, dues, rent, and office related costs of approximately $41,000.

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The dollar decrease of approximately $381,000 in general and administrative expense for the year ended December 31, 2015, as compared to the corresponding period in 2014, is comprised of the following major components:

●

Decrease in professional fees including consulting services and contract services of approximately $450,000 due primarily to decreases in professional services and investor relation fees of approximately $108,000, decreases in legal fees of approximately $360,000, decreases in various consulting and contract services of approximately $42,000, decrease in Board of Director fees of approximately $23,000, offset by increases in patent expenses of approximately $71,000 and auditing fees of approximately $12,000;

●

Decrease in personnel related expense of approximately $47,000 due to head count decreases;

●

Increase in stock-based compensation expense of approximately $68,000; and

●

Increase in travel, insurances, licenses, dues, rent, and office related costs of approximately $48,000.

We continue to focus our efforts on achieving additional future operating efficiencies by reviewing and improving upon existing business processes and evaluating our cost structure. We believe these efforts will allow us to continue to gradually decrease our level of general and administrative expense expressed as a percentage of total revenue.

Sales and Marketing Expense

Sales and marketing expense consists primarily of the salaries, commissions, other incentive compensation, employee benefits and travel expense of our sales, marketing, and business development.

The dollar increase in sales and marketing expense of approximately $230,000 during the year ended December 31, 2016, as compared to the corresponding period in 2015, is primarily comprised of the following major components:

●

Increase in personnel related expense of approximately $49,000 due primarily to increases in headcount;

●

Increase in professional services of approximately $195,000 resulting primarily from increased utilization of sales consultants;

●

Increase in contract services and office related expense of approximately $50,000;

●

Decrease in our Mexico sales office related expense of approximately $65,000 due primarily to lower contractor utilization for the year ended December 31, 2016 as compared to the comparable period in 2015 due to the completion of certain identity management projects;

●

Decrease in travel and trade show expense and other selling expense of approximately $52,000; and

●

Increase in stock-based compensation of approximately $53,000.

The dollar increase in sales and marketing expense of approximately $320,000 during the year ended December 31, 2015, as compared to the corresponding period in 2014, is primarily comprised of the following major components:

●

Increase in personnel related expense of approximately $173,000 due primarily to severance charges and increases in headcount;

●

Increase in professional services of approximately $31,000 resulting primarily from the modification of certain warrants issued to sales consultants;

●

Decrease in contract services, travel and trade show expense and office related expense of approximately $18,000;

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●

Increase in our Mexico sales office related expense of approximately $64,000 due primarily to higher contractor utilization combined with lower levels of capitalized contractor fees for the year ended December 31, 2015 as compared to the comparable period in 2014 due to the completion of certain identity management projects;

●

Increase in contract services and other selling expense of approximately $46,000 offset by decreases in office related expense of approximately $5,000; and

●

Increase in stock-based compensation of approximately $29,000.

We anticipate that the level of expense incurred for sales and marketing during the year ended December 31, 2016 will increase as we pursue large project solution opportunities.

Research and Development Expense

Research and development expense consists primarily of salaries, employee benefits and outside contractors for new product development, product enhancements, custom integration work and related facility costs.

Research and development expense increased approximately $689,000 for the year ended December 31, 2016, as compared to the corresponding period in 2015, due primarily to the following major components:

●

Increase in personnel expenditures of approximately $702,000 due to the full year effect of several headcount increases in mid-2015 combined with lower levels of capitalized labor for the year ended December 31, 2016 as compared to the comparable period in 2015 due to the completion of certain identity management projects;

●

Increase in contractor fees and contract services of approximately $51,000;

●

Increase in stock-based compensation of approximately $48,000; and

●

Decrease in office related expense and travel of approximately $112,000.

Research and development expense increased approximately $148,000 for the year ended December 31, 2015, as compared to the corresponding period in 2014, due primarily to the following major components:

●

Increase in personnel expenditures of approximately $390,000 due to headcount increases combined with lower levels of capitalized labor for the year ended December 31, 2015 as compared to the comparable period in 2014 due to the completion of certain identity management projects;

●

Decrease in contractor fees and contract services of approximately $382,000;

●

Increase in stock-based compensation of approximately $27,000; and

●

Increase in office related expense and travel of approximately $113,000.

Our level of expenditures in research and development reflects our belief that to maintain our competitive position in markets characterized by rapid rates of technological advancement, we must continue to invest significant resources in new systems and software as well as continue to enhance existing products.

Depreciation and Amortization

During the year ended December 31, 2016, depreciation and amortization expense decreased approximately $35,000 as compared to the corresponding period in 2015. During the year ended December 31, 2015, depreciation and amortization expense decreased approximately $15,000 as compared to the corresponding period in 2014. The relatively small amount of depreciation and amortization in both periods is a reflection of the relatively small property and equipment carrying value.

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Interest Expense (Income), Net

For the year ended December 31, 2016, we recognized interest income of $3,000 and interest expense of $248,000. For the year ended December 31, 2015, we recognized interest income of $7,000 and interest expense of $454,000. For the year ended December 31, 2014, we recognized interest income of $29,000 and interest expense of $445,000.

Interest expense for the year ended December 31, 2016 contains the following components:

●

Approximately $48,000 of amortization expense of deferred financing fees related to the Lines of Credit;

●

Approximately $97,000 of amortization expense of recognized beneficial conversion feature related to the Lines of Credit borrowings;

●

Approximately $102,000 related to coupon interest on our 8% Line of Credit borrowings; and

Interest expense for the year ended December 31, 2015 contains the following components:

●

Approximately $53,000 of amortization expense of deferred financing fees related to the Lines of Credit;

●

Approximately $385,000 of amortization expense of recognized beneficial conversion feature related to the Lines of Credit borrowings;

●

Approximately $12,000 related to coupon interest on our 8% Line of Credit borrowings; and

●

Approximately $4,000 related to miscellaneous interest charges.

Interest expense for the year ended December 31, 2014 contains the following components:

●

Approximately $369,000 of amortization expense of deferred financing fees related to the Lines of Credit;

●

Approximately $56,000 of amortization expense of recognized beneficial conversion feature related to the Lines of Credit borrowings;

●

Approximately $19,000 related to coupon interest on our 7% related party convertible notes and 8% Line of Credit borrowings;

●

Approximately $1,000 related to miscellaneous interest charges;

●

Coupon interest of approximately $4,000 related to our Related Party Convertible Notes; and

●

Deferred financing fee amortization expense of approximately $218,000.

Other Income

For the year ended December 31, 2016, we recognized other income of approximately $201,000 and other expense of $0. Other income for the year ended December 31, 2016 is comprised of approximately $200,000 from the write off of certain accrued expenses due the expiration of the legal statute of limitations on such liabilities.

For the year ended December 31, 2015, we recognized other income of approximately $145,000 and other expense of $0. Other income for the year ended December 31, 2015 is comprised of approximately $46,000 relating to the litigation settlement of certain patent infringement matters in favor of the Company and approximately $99,000 from the recovery of a previously written-off accounts receivable.

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For the year ended December 31, 2014, we recognized other income of approximately $297,000 and other expense of $0. Other income for the year ended December 31, 2014 is comprised of approximately $223,000 from the write off of certain accounts payable and accrued expenses due the expiration of the legal statute of limitations on such liabilities, approximately $35,000 relating to the litigation settlement of certain patent infringement matters in favor of the Company, approximately $37,000 from the return of an advertising deposit previously written off due to uncertainties regarding its return and $2,000 in miscellaneous receipts.

Income Tax Expense

During the year ended December 31, 2016, we recorded an expense of $21,000 from income taxes, as compared to an expense of $22,000 for the year ended December 31, 2015, and expense of $25,000 for the year ended December 31, 2014.

During the years ended December 31, 2016 and 2015, our expense for income taxes of $21,000 and 22,000, respectively, related to taxes on income generated in certain foreign jurisdictions offset by research and development tax credits generated in certain foreign jurisdictions.

We have incurred consolidated pre-tax losses during the years ended December 31, 2016, 2015 and 2014, and have incurred operating losses in all prior periods. Management has determined that it is more likely than not that a tax benefit from such losses will not be realized. Accordingly, we did not record a benefit for income taxes for these periods.

Liquidity, Capital Resources and Going Concern

Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt, including our Lines of Credit (defined below). Our principal uses of cash have included cash used in operations, product development, payments relating to purchases of property and equipment and repayments of borrowings. We expect that our principal uses of cash in the future will be for product development including customization of identity management products for enterprise and consumer applications, further development of intellectual property, development of Software-as-a-Service (“SaaS”) capabilities for existing products as well as general working capital and capital expenditure requirements. We expect that, as our revenues grow, our sales and marketing and research and development expenses will continue to grow, albeit at a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations.

Reliance on Lines of Credit

In March 2013, the Company and Holder entered into the Goldman Line of Credit with available borrowings of up to $2.5 million. In March 2014, available borrowings under the Goldman Line of Credit were increased to an aggregate total of $3.5 million (the “Amendment”). Pursuant to the terms and conditions of the Amendment, the Holder had the right to convert up to $2.5 million of the outstanding balance of the Goldman Line of Credit into shares of the Company's Common Stock for $0.95 per share. Any remaining outstanding balance was convertible into shares of the Company's Common Stock for $2.25 per share.

As consideration for the initial Goldman Line of Credit, the Company issued a warrant to the Holder, exercisable for 1,052,632 shares of the Company’s Common Stock (the "Line of Credit Warrant"). The Goldman Line of Credit Warrant had a term of two years from the date of issuance and an exercise price of $0.95 per share. As consideration for entering into the Amendment, the Company issued to the Holder a second warrant, exercisable for 177,778 shares of the Company’s Common Stock (the “Amendment Warrant”). The Amendment Warrant expired on March 27, 2015 and had an exercise price of $2.25 per share.

The Company estimated the fair value of the Line of Credit Warrant using the Black-Scholes option pricing model using the following assumptions: term of two years, a risk-free interest rate of 2.58%, a dividend yield of 0%, and volatility of 79%. The Company recorded the fair value of the Line of Credit Warrant as a deferred financing fee of approximately $580,000 to be amortized over the life of the Goldman Line of Credit. The Company estimated the fair value of the Amendment Warrant using the Black-Scholes option pricing model using the following assumptions: term on one year, a risk-free interest rate of 2.58%, a dividend yield of 0% and volatility of 74%. The Company recorded the fair value of the Amendment Warrant as an additional deferred financing fee of approximately $127,000 to be amortized over the life of the Goldman Line of Credit.

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During the years ended December 31, 2016 and 2015, the Company recorded an aggregate of approximately $48,000 and $53,000, respectively in deferred financing fee amortization expense which is recorded as a component of interest expense in the Company’s consolidated statements of operations.

In April 2014, the Company and the Holder entered into a further amendment to the Goldman Line of Credit to decrease the available borrowings to $3.0 million (the “Second Amendment”). Contemporaneous with the execution of the Second Amendment, the Company entered into a new unsecured line of credit with the Second Holder with available borrowings of up to $500,000 (the “$500K Line of Credit”), which amount was convertible into shares of the Company’s Common Stock for $2.25 per share. As a result of these amendments, total available borrowings under the Lines of Credit available to the Company remained unchanged at a total of $3.5 million. In connection with the Second Amendment, the Holder assigned and transferred to the Second Holder one-half of the Amendment Warrant.

In December 2014, the Company and the Holder entered into a further amendment to the Goldman Line of Credit to increase available borrowings to $5.0 million and extend the maturity date of the Goldman Line of Credit to March 27, 2017 (the “Third Amendment”). Also, as a result of the Third Amendment, the Holder had the right to convert up to $2.5 million outstanding principal, plus any accrued but unpaid interest (“Outstanding Balance”) into shares of the Company’s Common Stock for $0.95 per share, the next $500,000 Outstanding Balance into shares of Common Stock for $2.25 per share and any remaining outstanding balance thereafter into shares of Common Stock for $2.30 per share. The Third Amendment also modified the definition of a “Qualified Financing” to mean a debt or equity financing resulting in gross proceeds to the Company of at least $5.0 million.

In February 2015, as a result of the Series E Financing, the Company issued 1,978 shares of Series E Preferred to the Holder to satisfy $1,950,000 in principal borrowings under the Goldman Line of Credit plus approximately $28,000 in accrued interest. As a result of the Series E Financing, the Company’s borrowing capacity under the Goldman Line of Credit was reduced to $3,050,000 with the maturity date unchanged, and the $500K Line of Credit was terminated in accordance with its terms.

In March 2016, the Company and the Holder entered into a fourth amendment to the Goldman Line of Credit (the “Fourth Amendment”) solely to (i) increase available borrowings to $5.0 million; (ii) extend the maturity date to June 30, 2017, and (iii) provide for the conversion of the outstanding balance due under the terms of the Goldman Line of Credit into that number of fully paid and non-assessable shares of the Company’s Common Stock as is equal to the quotient obtained by dividing the outstanding balance by $1.25.

Contemporaneous with the execution of the Fourth Amendment, the Company entered into a new $500K Line of Credit with available borrowings of up to $500,000 with the Second Holder, which replaced the original $500K Line of Credit that terminated as a result of the consummation of the Series E Financing. Similar to the Fourth Amendment, the new $500K Line of Credit with the Second Holder matures on June 30, 2017, and provides for the conversion of the outstanding balance due under the terms of the $500K Line of Credit into that number of fully paid and non-assessable shares of the Company’s Common Stock as is equal to the quotient obtained by dividing the outstanding balance by $1.25.

On December 27, 2016, in connection with the consummation of the Series G Financing, the Company and Holder agreed to enter into the Fifth Amendment (the “Line of Credit Amendment”) to the Goldman Line of Credit to provide the Company with the ability to borrow up to $5.5 million under the terms of the Goldman Line of Credit. In addition, the Maturity Date, as defined in the Goldman Line of Credit was amended to be December 31, 2017. The Line of Credit Amendment was executed on January 23, 2017.

In addition, on January 23, 2017, the Company and the Second Holder amended the $500K Line of Credit to extend the maturity date thereof to December 31, 2017. No other amendments were made to the $500K Line of Credit.

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The Company evaluated the Lines of Credit and determined that the instruments contain a contingent beneficial conversion feature, i.e. an embedded conversion right that enables the holder to obtain the underlying Common Stock at a price below market value. The beneficial conversion feature is contingent as the terms of the conversion do not permit the Company to compute the number of shares that the holder would receive if the contingent event occurs (i.e. future borrowings under the Line of Credit). The Company has considered the accounting for this contingent beneficial conversion feature using the guidance in ASC 470, Debt. The guidance in ASC 470 states that a contingent beneficial conversion feature in an instrument shall not be recognized in earnings until the contingency is resolved. The beneficial conversion features of future borrowings under the Line of Credit will be measured using the intrinsic value calculated at the date the contingency is resolved using the conversion price and trading value of the Company’s Common Stock at the date the Lines of Credit were issued (commitment date). Pursuant to borrowings made during the 2015 year, the Company recognized approximately $146,000 in beneficial conversion feature as debt discount. As a result of the retirement of all amounts outstanding under the Lines of Credit in 2015, the Company recognized all remaining unamortized debt discount of approximately $385,000 as a component of interest expense during the three months ended March 31, 2015. As there was $2,650,000 in borrowings under the Lines of Credit during the year ended December 31, 2016, the Company recorded approximately $146,000 in debt discount attributable to the beneficial conversion feature during the year ended December 31, 2016. During the year ended December 31, 2016, the Company accreted approximately $97,000, respectively, of debt discount as a component of interest expense.

The following table sets forth the Company’s activity under its Lines of Credit for the periods indicated:

Balance outstanding under Lines of Credit as of December 31, 2014	$1,550
Borrowing under Lines of Credit	750
Repayments	(350)
Exchange of Indebtedness for Series E Preferred Stock	(1,950)
Balance outstanding under Lines of Credit as of December 31, 2015	$—
Borrowings under Lines of Credit	2,650
Repayments	—
Balance outstanding under Lines of Credit as of December 31, 2016	$2,650

We currently do not anticipate generating sufficient revenue and profit to repay these borrowings in full when due. Therefore, unless the holders of the notes issued under the Lines of Credit convert any outstanding balance into shares of Common Stock, we will need to seek an extension of the maturity date of the Lines of Credit on or before December 31, 2017. If remaining available borrowings under our Lines of Credit are insufficient or we are unable to extend the maturity date of the Lines of Credit, we will be required to raise additional capital through debt and/or equity financing to continue operations. No assurances can be given that any such financing will be available to us on favorable terms, if at all. At this time, we do not have any commitments for alternative financing or for an extension of the maturity date of the Lines of Credit.

Going Concern and Management's Plan

At December 31, 2016, we had a working capital deficit of approximately $3.0 million, compared to a working capital surplus of approximately $1.4 million at December 31, 2015. Our principal sources of liquidity at December 31, 2016 consisted of available borrowings under our Lines of Credit of $3.35 million, and approximately $1.68 million of cash and cash equivalents, compared to approximately $3.35 million in cash and cash equivalents at December 31, 2015.

Considering our projected cash requirements, our available cash will be insufficient to repay borrowings under our Lines of Credit in full when due at December 31, 2017, and may be insufficient to satisfy our cash requirements for the next twelve months from the date of this report, in the event our projected revenue opportunities fail to materialize as currently anticipated. These factors raise substantial doubt about our ability to continue as a going concern. To address our working capital requirements, management will continue to access available borrowings under our existing Lines of Credit, and will continue to seek additional equity and/or debt financing through the issuance of additional debt and/or equity securities. In addition, management intends to seek an extension of the maturity date of the Lines of Credit on or before December 31, 2017. There are currently no formal committed financing arrangements to support our projected cash shortfall, including commitments to purchase additional debt and/or equity securities, or extend the maturity dates of the Lines of Credit.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to continue to raise capital and generate positive cash flows from operations. However, the Company operates in markets that are emerging and highly competitive. There is no assurance that the Company will be able to obtain additional capital, operate at a profit or generate positive cash flows in the future.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

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Operating Activities

Net cash used in operating activities was $7,911,000 during the year ended December 31, 2016 as compared to $7,183,000 during the year ended December 31, 2015 and $6,422,000 during the year ended December 31, 2014. During the year ended December 31, 2016, net cash used in operating activities consisted of net loss of $9,527,000 and an increase in operating cash from changes in assets and liabilities of $383,000. We also incurred $1,235,000 in net non-cash costs including $1,162,000 in stock based compensation, $145,000 in debt issuance cost amortization and debt discount amortization, and $129,000 in depreciation and amortization offset by $200,000 of non-cash income primarily from the write-off of certain accrued expenses due to the expiration of the statute of limitations. During the year ended December 31, 2016, we generated cash of $35,000 from reductions in current assets and generated cash of $348,000 through increases in current liabilities and deferred revenues, excluding debt.

During the year ended December 31, 2015, net cash used in operating activities consisted of net loss of $8,534,000 and a decrease in operating cash from changes in assets and liabilities of $572,000. We also incurred $1,923,000 in net non-cash costs including $1,040,000 in stock based compensation (which includes $80,000 in warrants modified in lieu of cash as compensation), $438,000 in debt issuance cost amortization and debt discount amortization, $281,000 related to the write down of capitalized labor inventory to net realizable value, and $164,000 in depreciation and amortization. During the year ended December 31, 2015, we generated cash of $523,000 from reductions in current assets and used cash of $1,095,000 through reductions in current liabilities and deferred revenues, excluding debt.

During the year ended December 31, 2014, net cash used in operating activities consisted of net loss of $7,940,000 and an increase in operating cash from changes in assets and liabilities of $228,000. We also incurred $1,290,000 in net non-cash costs including $909,000 in stock based compensation (which includes $53,000 in warrants issued in lieu of cash as compensation), $426,000 in debt issuance cost amortization and debt discount amortization, and $179,000 in depreciation and amortization offset by $224,000 of non-cash income primarily from the write-off of certain accounts payable and accrued expenses due to the expiration of the statute of limitations. During the year ended December 31, 2014, we used cash of $314,000 to fund increases in current assets and generated cash of $542,000 through increases in current liabilities and deferred revenues, excluding debt.

Investing Activities

Net cash used in investing activities was $49,000 for the year ended December 31, 2016, $87,000 for the year ended December 31, 2015 and $117,000 for the year ended December 31, 2014. For the year ended December 31, 2016, 2015 and 2014, we used cash to fund capital expenditures of computer equipment, software and furniture and fixtures. This level of equipment purchases resulted primarily from the replacement of older equipment.

Financing Activities

We generated cash of $6,195,000 from financing activities for the year ended December 31, 2016, as compared to $10,337,000 for the year ended December 31, 2015 and $4,414,000 for the year ended December 31, 2014. During the year ended December 31, 2016, we generated cash of $2,000,000 from the Series F Financing offset by $21,000 in offering costs, and $1,625,000 from the Series G Financing, offset by $11,000 in offering costs, $3,000 from the exercise of 12,626 Common Stock options and $2,650,000 from borrowings under the Lines of Credit. We used cash of $51,000 for the payment of dividends on our Series B Preferred.

During the year ended December 31, 2015, we generated cash of $10,022,000 from the Series E Financing offset by $67,000 in offering costs, $33,000 from the exercise of 39,705 Common Stock options and $750,000 from borrowings under the Goldman Line of Credit offset by the repayment of $350,000 under the Goldman Line of Credit. We used cash of $51,000 for the payment of dividends on our Series B Preferred. During the year ended December 31, 2014, we generated cash of $2,848,000 from the exercise of 4,742,632 Common Stock warrants and $67,000 from the exercise of 98,617 Common Stock options. We also generated cash of $1,550,000 from the issuance of notes payable with warrants resulting from borrowing under the Goldman Line of Credit. We used cash of $51,000 for the payment of dividends on our Series B Preferred.

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Debt

At December 31, 2016, we had approximately $2,528,000 in outstanding debt, net of unamortized debt discount of approximately $122,000 and in addition the Company owed approximately $102,000 in related accrued interest.

Contractual Obligations

Total contractual obligations and commercial commitments as of December 31, 2016 are summarized in the following table (in thousands):

	Payment Due by Year
	Total	Less than 1 Year	1-3 Years	3-5 Years	More than 5 Years
Operating lease obligations	$728	$450	$269	$9	$—
Notes payable under related party lines of credit	2,650	2,650	—	—	—
Total	$3,378	$3,100	$269	$9	$—

Real Property Leases

●

8,045 square feet in Portland, Oregon, at a cost of approximately $16,000 per month until the expiration of the lease on October 31, 2018; and

●

304 square feet of office space in Mexico City, Mexico, at a cost of approximately $3,000 per month, until the expiration of the lease on November 30, 2017.

In addition to the corporate headquarters lease in San Diego, California, we also lease space in Ottawa, Province of Ontario, Canada; and Mexico City, Mexico.

Stock-based Compensation

Stock-based compensation related to equity options and restricted stock has been classified as follows in the accompanying consolidated statements of operations (in thousands):

	Year Ended December 31,
	2016	2015	2014
Cost of revenue	$20	$15	$12
General and administrative	714	618	572
Sales and marketing	224	171	142
Research and development	204	156	130

Total	$1,162	$960	$856

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Off-Balance Sheet Arrangements

At December 31, 2016, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We do not have relationships and transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed elsewhere in this Annual Report.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”), or other standard setting bodies, which are adopted by us as of the specified effective date. Unless otherwise discussed, the Company’s management believes the impact of recently issued standards not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption. See Note 1 to these consolidated financial statements for a detailed discussion of recently issued accounting pronouncements.

Impact of Inflation

The primary inflationary factor affecting our operations is labor costs and we do not believe that inflation has materially affected earnings during the past four years. Substantial increases in costs and expenses, particularly labor and operating expenses, could have a significant impact on our operating results to the extent that such increases cannot be passed along to customers and end users.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A significant number of our contracts require payment in U.S. dollars. We therefore do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although in the event any future contracts are denominated in a foreign currency, we may do so in the future. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements as of and for the years ended December 31, 2016, 2015 and 2014 and the report of our independent registered public accounting firm are included in Item 15 of this Annual Report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of December 31, 2016. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in Internal Control—Integrated Framework.

(b) Management's Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in Internal Control—Integrated Framework. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016, our internal control over financial reporting was effective.

Mayer Hoffman McCann P.C., our independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting, which report is included in Part IV below.

The Company’s Chief Executive Officer and Chief Financial Officer have determined that there have been no changes, in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company’s internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

Not applicable.

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PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item will be set forth in our definitive proxy statement for our 2017 annual meeting of stockholders to be filed within 120 days after our fiscal year end and is incorporated in this report by reference.

ITEM 11.

EXECUTIVE COMPENSATION

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

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PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	The following documents are filed as part of this Annual Report:

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated October 27, 2005 (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A, filed November 15, 2005).
3.1		Certificate of Incorporation (incorporated by reference to Annex B to the Company’s Definitive Proxy Statement on Schedule 14A, filed November 15, 2005).
3.2		Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed October 14, 2011).
3.3		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed February 16, 2017).
3.4		Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 2, 2015).
3.5		Certificate of Designations, Preferences and Rights of the Series F Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed September 9, 2016).
3.6		Certificate of Designations, Preferences and Rights of the Series G Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed December 30, 2016).
3.7		Amendment No. 1 to the Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed December 30, 2016).
4.1		Form of Amendment to Warrant, dated March 21, 2012, (incorporated by reference to Exhibit 4.16 to the Company's Annual Report on Form 10-K, filed April 4, 2012).
10.1		Employment Agreement, dated September 27, 2005, between the Company and S. James Miller (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 30, 2005).
10.2		Form of Indemnification Agreement entered into by the Company with its directors and executive officers (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form SB-2 (No. 333-93131), filed December 20, 1999, as amended).
10.3		Amended and Restated 1999 Stock Plan Award (incorporated by reference to Appendix B of the Company’s Definitive Proxy Statement on Schedule 14A, filed November 21, 2007).
10.4		Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed July 14, 2005).
10.5		2001 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB, filed November 14, 2001).
10.6		Securities Purchase Agreement, dated September 25, 2007, by and between the Company and certain accredited investors (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 26, 2007).

10.7		Office Space Lease between I.W. Systems Canada Company and GE Canada Real Estate Equity, dated July 25, 2008 (incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.8		Form of Securities Purchase Agreement, dated August 29, 2008 by and between the Company and certain accredited investors (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.9		Change of Control and Severance Benefits Agreement, dated September 27, 2008, between Company and Charles Aubuchon (incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.10		Change of Control and Severance Benefits Agreement, dated September 27, 2008, between Company and David Harding (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.11		First Amendment to Employment Agreement, dated September 27, 2008, between the Company and S. James Miller (incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.12		Form of Convertible Note dated November 14, 2008 (incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.13		Second Amendment to Employment Agreement, dated April 6, 2009, between the Company and S. James Miller (incorporated by reference to Exhibit 10.50 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).

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10.14		Office Space Lease between the Company and Allen W. Wooddell, dated July 25, 2008 (incorporated by reference to Exhibit 10.54 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.15		Third Amendment to Employment Agreement, dated December 10, 2009, between the Company and S. James Miller (incorporated by reference to Exhibit 10.60 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.16		Securities Purchase Agreement, dated December 12, 2011, by and between the Company and certain accredited investors (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 21, 2011).

10.17		Note Exchange Agreement, dated December 12, 2011, by and between the Company and certain accredited investors (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed December 21, 2011).
10.18		Fourth Amendment to Employment Agreement, dated March 10, 2011, between the Company and S. James Miller, (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K, filed January 17, 2012).
10.19		Fifth Amendment to Employment Agreement, dated January 31, 2012, between the Company and S. James Miller, Jr., (incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K, filed April 4, 2012.
10.20		Employment Agreement, dated January 1, 2013, between the Company and Wayne Wetherell (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 7, 2013).
10.21		Employment Agreement, dated January 1, 2013, between the Company and David Harding (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 7, 2013).
10.22		Convertible Promissory Note dated March 27, 2013 issued by the Company to Neal Goldman (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K, filed April 1, 2013).
10.23		Amendment to Convertible Promissory Note, dated March 12, 2014 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 13, 2014).
10.24		Note Exchange Agreement, dated January 29, 2015 (incorporated by reference to the Company’s Current Report on Form 8-K, filed February 2, 2015).
10.25		Sixth Amendment to Employment Agreement, by and between S. James Miller and the Company, dated November 1, 2013 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed November 7, 2013).
10.26		Seventh Amendment to Employment Agreement, by and between S. James Miller, Jr. and the Company, dated January 9, 2015 (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 15, 2015).
10.27		Second Amendment to Employment Agreement, by and between Wayne Wetherell and the Company, dated January 9, 2015 (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 15, 2015).
10.28		Second Amendment to Employment Agreement, by and between David E. Harding and the Company, dated January 9, 2015 (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 15, 2015).
10.29		Amendment No. 3 to Convertible Promissory Note, dated December 8, 2014 (incorporated by reference to the Company’s Current Report on Form 8-K, filed December 10, 2014).
10.30		Third Amendment to Employment Agreement, by and between Wayne Wetherell and the Company, dated December 14, 2015 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed December 21, 2015).
10.31		Third Amendment to Employment Agreement, by and between David E. Harding and the Company, dated December 14, 2015 (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed December 21, 2015).
10.32		Eighth Amendment to Employment Agreement, by and between S. James Miller and the Company, dated December 14, 2015 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 21, 2015).
10.33		Amendment No. 4 to Convertible Promissory Note, dated March 8, 2016 (incorporated by reference to the Company's Current Report on Form 8-K, filed March 10, 2017).

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10.34		Convertible Promissory Note, dated March 9, 2016 (incorporated by reference to the Company's Current Report on Form 8-K, filed March 10, 2017).
10.35		Form of Securities Purchase Agreement, dated September 7, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 9, 2016).
10.36		Amendment No. 5 to Convertible Promissory Note, dated January 23, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-K, filed January 26, 2017).
10.37		Form of Subscription Agreement for Series G Convertible Preferred Stock (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 30, 2016).
10.38		Form of Exchange Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed December 30, 2016).
10.39		Ninth Amendment to Employment Agreement, by and between James Miller, Jr. and the Company, dated October 20, 2016 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed December 30, 2016).
10.40		Fourth Amendment to Employment Agreement, by and between Wayne Wetherell and the Company, dated October 20, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed December 30, 2016).
10.41		Fourth Amendment to Employment Agreement, by and between David E. Harding and the Company, dated October 20, 2016 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, dated December 30, 2016).
21.1		List of Subsidiaries (incorporated by referenced to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed February 24, 2010).
23.1		Consent of Independent Registered Public Accounting Firm.
31.1		Certification of CEO as Required by Rule 13a-14(a)/15d-14, filed herewith
31.2		Certification of CFO as Required by Rule 13a-14(a)/15d-14, filed herewith.
32		Certification of CEO and CFO as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.

Registrant Date: March 30, 2017		ImageWare Systems, Inc. /s/ S. James Miller, Jr.
		S. James Miller, Jr.
		Chief Executive Officer (Principal Executive Officer), President

Date: March 30, 2017		/s/ Wayne Wetherell
		Wayne Wetherell
		Chief Financial Officer (Principal Financial Officer)

In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Date: March 30, 2017		/s/ S. James Miller, Jr.
		S. James Miller, Jr.
		Chairman of the Board

Date: March 30, 2017		/s/ David Loesch
		David Loesch
		Director

Date: March 30, 2017		/s/ Steve Hamm
		Steve Hamm
		Director
		/s/ David Carey
Date: March 30, 2017		David Carey
		Director
		/s/ John Cronin
Date: March 30, 2017		John Cronin
		Director
		/s/ Neal Goldman
Date: March 30, 2017		Neal Goldman
		Director
		/s/ Charles Crocker
Date: March 30, 2017		Charles Crocker
		Director
		/s/ Dana Kammersgard
Date: March 30, 2017		Dana Kammersgard
		Director

-53-

IMAGEWARE SYSTEMS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page Number

Reports of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of December 31, 2016 and 2015		F-4

Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014		F-5

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, 2015 and 2014		F-6

Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2016, 2015 and 2014		F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014		F-10

Notes to Consolidated Financial Statements		F-11

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of:

ImageWare Systems, Inc.

We have audited the accompanying consolidated balance sheets of ImageWare Systems, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive loss, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ImageWare Systems, Inc. as of December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ImageWare Systems, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 30, 2017, expressed an unqualified opinion thereon.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring operating losses and is dependent on additional financing to fund operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

March 30, 2017

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of:

ImageWare Systems, Inc.

We have audited ImageWare Systems, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). ImageWare Systems, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, ImageWare Systems, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of ImageWare Systems, Inc. and our report dated March 30, 2017, expressed an unqualified opinion thereon.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

March 30, 2017

F-3

IMAGEWARE SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	December 31, 2016	December 31, 2015
ASSETS
Current Assets:
Cash	$1,586	$3,352
Accounts receivable, net of allowance for doubtful accounts of $1 and $3 at December 31, 2016 and 2015, respectively.	287	349
Inventory, net	23	46
Other current assets	135	69
Total Current Assets	2,031	3,816

Property and equipment, net	93	162
Other assets	34	98
Intangible assets, net of accumulated amortization	106	117
Goodwill	3,416	3,416
Total Assets	$5,680	$7,609

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current Liabilities:
Accounts payable	$425	$198
Deferred revenue	1,045	1,059
Accrued expenses	1,047	1,149
Convertible lines of credit to related parties, net of discount	2,528	—
Total Current Liabilities	5,045	2,406

Pension obligation	1,895	1,511
Total Liabilities	6,940	3,917

Shareholders’ Equity (Deficit):
Preferred stock, authorized 4,000,000 shares:
Series B Convertible Redeemable Preferred Stock, $0.01 par value; designated 750,000 shares, 389,400 shares issued, and 239,400 shares outstanding at December 31, 2016 and 2015; liquidation preference $607 at December 31, 2016 and 2015.	2	2
Series E Convertible Redeemable Preferred Stock, $0.01 par value; designated 12,000 shares, 12,000 shares issued and outstanding at December 31, 2016 and 2015; liquidation preference $12,000 and $12,240 at December 31, 2016 and 2015, respectively.	—	—
Series F Convertible Redeemable Preferred Stock, $0.01 par value; designated 2,000 shares, 2,000 and 0 shares issued and outstanding at December 31, 2016 and 2015, respectively; liquidation preference $2,000 at December 31, 2016.	—	—
Series G Convertible Redeemable Preferred Stock, $0.01 par value; designated 6,120 shares, 6,021 and 0 shares issued and outstanding at December 31, 2016 and 2015, respectively; liquidation preference $6,021 at December 31, 2016.	—	—
Common Stock, $0.01 par value, 150,000,000 shares authorized; 91,853,499 and 94,077,599 shares issued at December 31, 2016 and 2015, respectively, and 91,846,795 and 94,070,895 shares outstanding at December 31, 2016 and 2015, respectively.	917	940
Additional paid-in capital	156,195	149,902
Treasury stock, at cost 6,704 shares	(64)	(64)
Accumulated other comprehensive loss	(1,543)	(1,195)
Accumulated deficit	(156,767)	(145,893)
Total Shareholders’ Equity (Deficit)	(1,260)	3,692
Total Liabilities and Shareholders’ Equity (Deficit)	$5,680	$7,609

The accompanying notes are an integral part of these consolidated financial statements.

F-4

IMAGEWARE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

	Year Ended December 31,
	2016	2015	2014
Revenues:
Product	$1,249	$2,192	$1,634
Maintenance	2,563	2,577	2,525
	3,812	4,769	4,159
Cost of revenues:
Product	243	1,117	257
Maintenance	827	827	735
Gross profit	2,742	2,825	3,167

Operating expenses:
General and administrative	3,722	3,437	3,818
Sales and marketing	3,021	2,791	2,471
Research and development	5,332	4,643	4,495
Depreciation and amortization	129	164	179
	12,204	11,035	10,963
Loss from operations	(9,462)	(8,210)	(7,796)

Interest expense	245	447	416
Other income, net	(201)	(145)	(297)
Loss before income taxes	(9,506)	(8,512)	(7,915)

Income tax expense	21	22	25
Net loss	$(9,527)	$(8,534)	$(7,940)
Preferred dividends	(1,347)	(1,065)	(51)
Net loss available to common shareholders	$(10,874)	$(9,599)	$(7,991)

Basic and diluted loss per common share — see Note 2:
Net loss	$(0.10)	$(0.09)	$(0.09)
Preferred dividends	(0.02)	(0.01)	(—)
Basic and diluted loss per share available to common shareholders	$(0.12)	$(0.10)	$(0.09)
Basic and diluted weighted-average shares outstanding	94,426,783	93,786,079	91,795,971

The accompanying notes are an integral part of these consolidated financial statements.

F-5

IMAGEWARE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

	Year Ended December 31,
	2016	2015	2014

Net loss	$(9,527)	$(8,534)	$(7,940)
Other comprehensive income (loss):
Reduction (increase) in additional minimum pension liability	(347)	332	(744)
Foreign currency translation adjustment	(1)	67	(20)
Comprehensive loss	$(9,875)	$(8,135)	$(8,704)

The accompanying notes are an integral part of these consolidated financial statements.

F-6

IMAGEWARE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

	Series B Convertible Redeemable Preferred		Series E Convertible Redeemable Preferred		Series F Convertible Redeemable Preferred		Series G Convertible Redeemable Preferred		Common Stock		Treasury Stock		Additional Paid-In	Accumulated Other Compre-hensive	Accumulated
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Total
Balance at December 31, 2013	239,400	$2	-	$-	-	$-	-	$-	87,555,317	$874	(6,704)	$(64)	$131,652	$(830)	$(128,303)	$3,331

Issuance of Common Stock pursuant to warrant exercises	-	-	-	-	-	-	-	-	4,742,632	47	-	-	2,801	-	-	2,848
Settlement of derivative liabilities pursuant to warrants exercised for cash	-	-	-	-	-	-	-	-	-	-	-	-	57	-	-	57
Issuance of Common Stock pursuant to cashless warrant exercises	-	-	-	-	-	-	-	-	868,565	9	-	-	(9)	-	-	-
Warrants issued to secure increase in line of credit borrowing facility	-	-	-	-	-	-	-	-	-	-	-	-	128	-	-	128
Issuance of Common Stock pursuant to option exercises	-	-	-	-	-	-	-	-	98,617	1	-	-	66	-	-	67
Recognition of beneficial conversion feature on convertible debt	-	-	-	-	-	-	-	-	-	-	-	-	296	-	-	296
Warrants issued in lieu of cash as compensation	-	-	-	-	-	-	-	-	-	-	-	-	53	-	-	53
Conversion of related party notes payable to Common Stock	-	-	-	-	-	-	-	-	154,607	2	-	-	83	-	-	85
Stock-based compensation expense	-	-	-	-	-	-	-	-	94,116	1	-	-	855	-	-	856
Additional minimum pension liability	-	-	-	-	-	-	-	-	-	-	-	-	-	(744)	-	(744)
Foreign currency translation adjustment	-	-	-	-	-	-	-	-	-	-	-	-	-	(20)	-	(20)
Dividends on preferred stock	-	-	-	-	-	-	-	-	-	-	-	-	-	-	(51)	(51)
Net loss	-	-	-	-	-	-	-	-	-	-	-	-	-	-	(7,940)	(7,940)
Balance at December 31, 2014	239,400	$2	-	$-	-	$-	-	$-	93,513,854	$934	(6,704)	$(64)	$135,982	$(1,594)	$(136,294)	$(1,034)

F-7

IMAGEWARE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

(continued)

	Series B Convertible Redeemable Preferred		Series E Convertible Redeemable Preferred		Series F Convertible Redeemable Preferred		Series G Convertible Redeemable Preferred		Common Stock		Treasury Stock		Additional Paid-In	Accumulated Other Compre- hensive	Accumulated
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Total
Balance at December 31, 2014	239,400	$2	-	$-	-	$-	-	$-	93,513,854	$934	(6,704)	$(64)	$135,982	$(1,594)	$(136,294)	$(1,034)

Issuance of Series E Convertible Redeemable Preferred Stock for cash, net of issuance costs	-	-	10,022	-	-	-	-	-	-	-	-	-	9,955	-	-	9,955
Conversion of related party debt into Series E Convertible Redeemable Preferred Stock	-	-	1,978	-	-	-	-	-	-	-	-	-	1,978	-	-	1,978
Issuance of Common Stock in payment of Series E Preferred dividends	-	-	-	-	-	-	-	-	478,664	5	-	-	769	-	(774)	-
Issuance of Common Stock pursuant to cashless warrant exercises	-	-	-	-	-	-	-	-	45,376	1	-	-	(1)	-	-	-
Issuance of Common Stock pursuant to option exercises	-	-	-	-	-	-	-	-	39,705	-	-	-	33	-	-	33
Recognition of beneficial conversion feature on convertible debt	-	-	-	-	-	-	-	-	-	-	-	-	146	-	-	146
Warrants modified in lieu of cash as compensation	-	-	-	-	-	-	-	-	-	-	-	-	80	-	-	80
Stock-based compensation expense	-	-	-	-	-	-	-	-	-	-	-	-	960	-	-	960
Reduction in minimum pension liability	-	-	-	-	-	-	-	-	-	-	-	-	-	332	-	332
Foreign currency translation adjustment	-	-	-	-	-	-	-	-	-	-	-	-	-	67	-	67
Dividends on preferred stock	-	-	-	-	-	-	-	-	-	-	-	-	-	-	(291)	(291)
Net loss	-	-	-	-	-	-	-	-	-	-	-	-	-	-	(8,534)	(8,534)
Balance at December 31, 2015	239,400	$2	12,000	$-	-	$-	-	$-	94,077,599	$940	(6,704)	$(64)	$149,902	$(1,195)	$(145,893)	$3,692

The accompanying notes are an integral part of these consolidated financial statements.

F-8

IMAGEWARE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

(continued)

	Series B Convertible Redeemable Preferred		Series E Convertible Redeemable Preferred		Series F Convertible Redeemable Preferred		Series G Convertible Redeemable Preferred		Common Stock		Treasury Stock		Additional Paid-In	Accumulated Other Compre- hensive	Accumulated
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Total
Balance at December 31, 2015	239,400	$2	12,000	$-	-	$-	-	$-	94,077,599	$940	(6,704)	$(64)	$149,902	$(1,195)	$(145,893)	$3,692

Issuance of Series F Convertible Redeemable Preferred Stock for cash, net of issuance costs	-	-	-	-	2,000	-	-	-	-	-	-	-	1,979	-	-	1,979
Issuance of Series G Convertible Redeemable Preferred Stock for cash, net of issuance costs	-	-	-	-	-	-	1,625	-	-	-	-	-	1,614	-	-	1,614
Issuance of Series G Convertible Redeemable Preferred Stock in exchange for Common Stock	-	-	-	-	-	-	4,396	-	(3,383,830)	(34)	-	-	31	-	-	(3)
Issuance of Common Stock pursuant to cashless warrant exercises	-	-	-	-	-	-	-	-	144,459	1	-	-	(1)	-	-	-
Issuance of Common Stock pursuant to option exercises	-	-	-	-	-	-	-	-	12,626	-	-	-	3	-	-	3
Recognition of beneficial conversion feature on convertible debt	-	-	-	-	-	-	-	-	-	-	-	-	219	-	-	219
Stock-based compensation expense	-	-	-	-	-	-	-	-	-	-	-	-	1,162	-	-	1,162
Additional minimum pension liability	-	-	-	-	-	-	-	-	-	-	-	-	-	(347)	-	(347)
Foreign currency translation adjustment	-	-	-	-	-	-	-	-	-	-	-	-	-	(1)	-	(1)
Dividends on preferred stock	-	-	-	-	-	-	-	-	1,002,645	10	-	-	1,286	-	(1,347)	(51)
Net loss	-	-	-	-	-	-	-	-	-	-	-	-	-	-	(9,527)	(9,527)
Balance at December 31, 2016	239,400	$2	12,000	$-	2,000	$-	6,021	$-	91,853,499	$917	(6,704)	$(64)	$156,195	$(1,543)	$(156,767)	$(1,260)

The accompanying notes are an integral part of these consolidated financial statements.

F-9

IMAGEWARE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
Cash flows from operating activities	2016	2015	2014
Net loss	$(9,527)	$(8,534)	$(7,940)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	129	164	179
Amortization of debt discounts and debt issuance costs	145	438	426
Stock-based compensation	1,162	960	856
Write down of capitalized labor inventory to net realizable value	—	281	—
Reduction in accounts payable and accrued expenses from expiration of statute of limitations	(200)	—	(224)
Warrants modified/issued in lieu of cash as compensation for services	—	80	53
Change in assets and liabilities
Accounts receivable	62	(83)	35
Inventory	23	589	(411)
Other assets	(50)	17	62
Accounts payable	227	(261)	188
Accrued expenses	94	(76)	130
Deferred revenue	(13)	(768)	165
Pension obligation	37	10	59

Total adjustments	1,616	1,351	1,518

Net cash used by operating activities	(7,911)	(7,183)	(6,422)

Cash flows from investing activities
Purchase of property and equipment	(49)	(87)	(117)

Net cash used by investing activities	(49)	(87)	(117)

Cash flows from financing activities
Proceeds from line of credit, net	2,650	400	1,550
Proceeds from exercise of stock options	3	33	67
Proceeds from issuance of preferred stock, net of issuance costs	3,593	9,955	—
Dividends paid to preferred stockholders	(51)	(51)	(51)
Proceeds from exercised warrants to purchase stock	—	—	2,848

Net cash provided by financing activities	6,195	10,337	4,414

Effect of exchange rate changes on cash	(1)	67	(20)
Net increase (decrease) in cash	(1,766)	3,134	(2,145)
Cash at beginning of year	3,352	218	2,363
Cash at end of year	$1,586	$3,352	$218
Supplemental disclosure of cash flow information:
Cash paid for interest	$—	$1	$2
Cash paid for income taxes	$—	$—	$1
Summary of non-cash investing and financing activities:
Conversion of related party notes payable into Common Stock	$—	$—	$85
Conversion of related party notes payable into Series E Preferred	$—	$1,978	$—
Beneficial conversion feature of convertible debt	$219	$146	$296
Accrued unpaid dividends on Series E Preferred	$—	$240	$—
Stock dividend on Series E Preferred	$1,228	$774	$—
Stock dividend on Series F Preferred	$63	$240	$—
Stock dividend on Series G Preferred	$5	$—	$—
Issuance of Common Stock pursuant to cashless warrant exercises	$1	$1	$9
Exchange of Common Stock for Series G Preferred	$34	$—	$—
Reduction (increase) in additional minimum pension liability	$(347)	$332	$(744)
Reclassification of warrants previously classified as derivative liabilities to additional paid-in capital	$—	$—	$57
Issuance of common warrants securing line of credit borrowing facility	$—	$—	$128
Issuance of restricted stock pursuant to achievement of vesting conditions	$—	$—	$1

The accompanying notes are an integral part of these consolidated financial statements.

F-10

IMAGEWARE SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016, 2015 AND 2014

1. DESCRIPTION OF BUSINESS AND OPERATIONS

Overview

As used in this Annual Report, “we,” “us,” “our,” “ImageWare,” “ImageWare Systems,” “Company” or “our Company” refers to ImageWare Systems, Inc. and all of its subsidiaries. ImageWare Systems, Inc. is incorporated in the state of Delaware. The Company is a pioneer and leader in the emerging market for biometrically enabled software-based identity management solutions. Using those human characteristics that are unique to us all, the Company creates software that provides a highly reliable indication of a person’s identity. The Company’s “flagship” product is the patented IWS Biometric Engine®. The Company’s products are used to manage and issue secure credentials, including national IDs, passports, driver licenses and access control credentials. The Company’s products also provide law enforcement with integrated mug shot, fingerprint LiveScan and investigative capabilities. The Company also provides comprehensive authentication security software using biometrics to secure physical and logical access to facilities or computer networks or internet sites. Biometric technology is now an integral part of all markets the Company addresses and all of the products are integrated into the IWS Biometric Engine.

Recent Developments

Creation of Series G Convertible Redeemable Preferred Stock and Series G Financing

On December 29, 2016, the Company accepted subscription forms from certain accredited investors (the “Investors”) to purchase a total of 1,625 shares of Series G Preferred for $1,000 per share (the “Series G Financing”), resulting in gross proceeds to the Company of $1,625,000 net of issuance costs of approximately $11,000. In addition, the Company also received executed exchange agreements from the Investors pursuant to which the Company exchanged an aggregate total of approximately 3.4 million shares of Common Stock held by the Investors for an aggregate total of approximately 4,400 shares of Series G Preferred.

Creation of Series F Convertible Redeemable Preferred Stock and Series F Financing

F-11

Amendments to Lines of Credit

Key Product Introduction

●

Liquidity, Going Concern and Management's Plan

Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt, including our Lines of Credit (defined above). Our principal uses of cash have included cash used in operations, product development, payments relating to purchases of property and equipment and repayments of borrowings. We expect that our principal uses of cash in the future will be for product development including customization of identity management products for enterprise and consumer applications, further development of intellectual property, development of Software-as-a-Service (“SaaS”) capabilities for existing products as well as general working capital and capital expenditure requirements. Management expects that, as our revenues grow, our sales and marketing and research and development expenses will continue to grow, albeit at a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations.

F-12

F-13

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s wholly-owned subsidiaries are XImage Corporation, a California Corporation, ImageWare Systems ID Group, Inc. a Delaware corporation (formerly Imaging Technology Corporation), I.W. Systems Canada Company, a Nova Scotia unlimited liability company, ImageWare Digital Photography Systems, Inc., LLC a Nevada limited liability company (formerly Castleworks LLC), Digital Imaging International GmbH, a company formed under German laws and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated.

Operating Cycle

Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for doubtful accounts receivable, inventory carrying values, deferred tax asset valuation allowances, accounting for loss contingencies, recoverability of goodwill and acquired intangible assets and amortization periods, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, revenue and cost of revenues recognized under the percentage of completion method and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates.

Accounts Receivable

In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful.

Inventories

Finished goods inventories are stated at the lower of cost, determined using the average cost method, or market. See Note 6.

Property, Equipment and Leasehold Improvements

Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

F-14

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expenses, deferred revenues and lines of credit payable to related parties, the carrying amounts approximate fair value due to their relatively short maturities.

Revenue Recognition

The Company recognizes revenue from the following major revenue sources:

●

Long-term fixed-price contracts involving significant customization;

●

Fixed-price contracts involving minimal customization;

●

Software licensing;

●

Sales of computer hardware and identification media; and

●

Post-contract customer support (“ PCS”).

The Company’s revenue recognition policies are consistent with U.S. GAAP including the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition”, ASC 605-35 “Revenue Recognition, Construction-Type and Production-Type Contracts”, “Securities and Exchange Commission Staff Accounting Bulletin 104”, and ASC 605-25 “Revenue Recognition, Multiple Element Arrangements”. Accordingly, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured.

The Company recognizes revenue and profit as work progresses on long-term, fixed-price contracts involving significant amount of hardware and software customization using the percentage of completion method based on costs incurred to date compared to total estimated costs at completion. The primary components of costs incurred are third party software and direct labor cost including fringe benefits. Revenues recognized in excess of amounts billed are classified as current assets under “Costs and estimated earnings in excess of billings on uncompleted contracts”. Amounts billed to customers in excess of revenues recognized are classified as current liabilities under “Billings in excess of costs and estimated earnings on uncompleted contracts”. Revenue from contracts for which the Company cannot reliably estimate total costs or there are not significant amounts of customization are recognized upon completion. For contracts that require significant amounts of customization that the Company accounts for under the completed contract method of revenue recognition, the Company defers revenue recognition until customer acceptance is received. For contracts containing either extended or dependent payment terms, revenue recognition is deferred until such time as payment has been received by the Company. The Company also generates non-recurring revenue from the licensing of its software. Software license revenue is recognized upon the execution of a license agreement, upon deliverance, when fees are fixed and determinable, when collectability is probable, when all other significant obligations have been fulfilled and the Company has obtained vendor specific objective evidence (“VSOE”) of the fair value of the undelivered element. VSOE of fair value for customer support services is determined by reference to the price the customer pays for such element when sold separately; that is, the renewal rate offered to customers. In those instances when objective and reliable evidence of fair value exists for the undelivered items but not for the delivered items, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of arrangement consideration allocated to the delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items. The Company also generates revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer. The Company’s revenue from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant obligations remain and collectability of the related receivable is probable. Pricing of maintenance contracts is consistent period to period and calculated as a percentage of the software or hardware revenue. Amounts collected in advance for maintenance services are included in current liabilities under "Deferred revenue". Sales tax collected from customers is excluded from revenue.

F-15

Goodwill

The Company accounts for its intangible assets under the provisions of ASC 350, “Intangibles - Goodwill and Other”. In accordance with ASC 350, intangible assets with a definite life are analyzed for impairment under ASC 360-10-05 “Property, Plant and Equipment” and intangible assets with an indefinite life are analyzed for impairment under ASC 360 annually, or more often if circumstances dictate. The Company performs its annual goodwill impairment test in the fourth quarter of each year, or if required, at the end of each fiscal quarter. In accordance with ASC 350, goodwill, or the excess of cost over fair value of net assets acquired is tested for impairment using a fair value approach at the “reporting unit” level. A reporting unit is the operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Company’s reporting unit is at the entity level. The Company recognizes an impairment charge for any amount by which the carrying amount of a reporting unit’s goodwill exceeds its fair value. The Company uses fair value methodologies to establish fair values.

The Company did not record any goodwill impairment charges for the years ended December 31, 2016, 2015 or 2014.

Intangible and Long Lived Assets

Intangible assets are carried at their cost less any accumulated amortization. Any costs incurred to renew or extend the life of an intangible or long lived asset are reviewed for capitalization. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high quality financial institutions and at times during the years ended December 31, 2016 and 2015 exceeded the FDIC insurance limits of $250,000. Sales are typically made on credit and the Company generally does not require collateral. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for doubtful accounts. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $1,000 and $3,000 at December 31, 2016 and 2015, respectively.

For the year ended December 31, 2016 two customers accounted for approximately 30% or $1,162,000 of total revenues and had trade receivables of $78,000 as of the end of the year. For the year ended December 31, 2015 two customers accounted for approximately 37% or $1,753,000 of total revenues and had trade receivables of $78,000 as of the end of the year. For the year ended December 31, 2014, one customer accounted for approximately 17% or $725,000 of total revenues and $0 trade receivables as of the end of the year.

Stock-Based Compensation

At December 31, 2016, the Company had one stock-based compensation plan for employees and nonemployee directors, which authorize the granting of various equity-based incentives including stock options and restricted stock.

F-16

The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, “Compensation – Stock Compensation”. The fair value of stock options granted is recognized to expense over the requisite service period. Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Stock-based compensation expense is reported in operating expenses based upon the departments to which substantially all of the associated employees report and credited to additional paid-in-capital. Stock-based compensation expense related to equity options was approximately $1,162,000, $744,000 and $618,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Company’s Common Stock. Historical volatility factors utilized in the Company’s Black-Scholes computations for options granted during the years ended December 31, 2016, 2015 and 2014 ranged from 65% to 116%. The Company has elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin No. 110. The expected term used by the Company during the years ended December 31, 2016, 2015 and 2014 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations for the years ended December 31, 2016, 2015 and 2014 averaged 2.6%. Dividend yield is zero as the Company does not expect to declare any dividends on the Company’s common shares in the foreseeable future.

Restricted stock units are recorded at the grant date fair value with corresponding compensation expense recorded ratably over the requisite service period.

Income Taxes

Current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Foreign Currency Translation

The financial position and results of operations of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. dollars at weighted-average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments. The Company translates foreign currencies of its German, Canadian and Mexican subsidiaries. The cumulative translation adjustment, which is recorded in accumulated other comprehensive loss, decreased approximately $1,000 for the year ended December 31, 2016, increased approximately $67,000 for the year ended December 31, 2015 and decreased approximately $20,000 for the year ended December 31, 2014.

F-17

Comprehensive Loss

Comprehensive loss consists of net gains and losses affecting shareholders’ equity that, under generally accepted accounting principles, are excluded from net loss. For the Company, the only items are the cumulative translation adjustment and the additional minimum liability related to the Company’s defined benefit pension plan, recognized pursuant to ASC 715-30, "Compensation - Retirement Benefits - Defined Benefit Plans – Pension".

Advertising Costs

The Company expenses advertising costs as incurred. The Company incurred approximately $24,000 in advertising expenses during the year ended December 31, 2016, $12,000 in advertising expenses during the year ended December 31, 2015 and $9,000 during the year ended December 31, 2014.

Loss Per Share

Basic loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period, adjusted to include, if dilutive, potential dilutive shares consisting of convertible preferred stock, convertible notes payable, stock options and warrants, calculated using the treasury stock and if-converted methods. For diluted loss per share calculation purposes, the net loss available to commons shareholders is adjusted to add back any preferred stock dividends and any interest on convertible debt reflected in the consolidated statement of operations for the respective periods.

(Amounts in thousands, except share and per share amounts)
	Year Ended December 31,
Numerator for basic and diluted loss per share:	2016	2015	2014
Net loss	$(9,527)	$(8,534)	$(7,940)
Preferred dividends	(1,347)	(1,065)	(51)
Net loss available to common shareholders	$(10,874)	$(9,599)	$(7,991)

Denominator for basic loss per share — weighted-average shares outstanding	94,426,783	93,786,079	91,795,971
Effect of dilutive securities	—	—	—
Denominator for diluted loss per share — weighted-average shares outstanding	94,426,783	93,786,079	91,795,971

Basic and diluted loss per share:
Net loss	$(0.10)	$(0.09)	$(0.09)
Preferred dividends	(0.02)	(0.01)	(—)
Net loss available to common shareholders	$(0.12)	$(0.10)	$(0.09)

The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as their effect would have been antidilutive:

Potential Dilutive Securities:	Common Share Equivalents at December 31, 2016	Common Share Equivalents at December 31, 2015	Common Share Equivalents at December 31, 2014
Convertible lines of credit	2,201,903	—	1,649,548
Convertible redeemable preferred stock – Series B	46,029	46,029	46,029
Convertible redeemable preferred stock – Series E	6,315,789	6,442,105	—
Convertible redeemable preferred stock – Series F	1,333,333	—	—
Convertible redeemable preferred stock – Series G	4,014,000	—	—
Stock options	6,506,843	5,376,969	4,057,296
Warrants	175,000	450,000	977,778
Total Potential Dilutive Securities	20,592,897	12,315,103	6,730,651

F-18

Recently Issued Accounting Standards

FASB ASU No. 2014-09. In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB finalized a one-year deferral of the effective date of the new standard. For public entities, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Calendar year-end public companies are therefore required to apply the revenue guidance beginning in their 2018 interim and annual financial statements. The standard permits the use of either the retrospective or cumulative effect transition method. We currently anticipate adopting the standard using the cumulative effect transition method during the first fiscal quarter in 2018.

FASB ASU No. 2014-15. In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU No. 2014-15 became effective in the fourth quarter of 2016. The adoption of ASU No. 2014-15 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2015-03. In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. The standard became effective for the Company beginning January 1, 2016. The adoption of ASU No. 2015-03 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2015-11. In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory”. The amendments in ASU No. 2015-11 require an entity of measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. For public business entities, the amendments in ASU No. 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2016-01. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall - Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in this ASU address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and apply to all entities that hold financial assets or owe financial liabilities. The amendments in this ASU also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. That impairment assessment is similar to the qualitative assessment for long-lived assets, goodwill, and indefinite-lived intangible assets. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with earlier application permitted for financial statements that have not been issued. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2018 and are currently evaluating the impact the adoption of this new accounting standard will have on our consolidated financial statements.

F-19

FASB ASU No. 2016-02. In February 2016, the FASB issued ASU No. 2016-02, “Leases”. This guidance will result in key changes to lease accounting and will aim to bring leases onto balance sheets to give investors, lenders, and other financial statement users a more comprehensive view of a company's long-term financial obligations as well as the assets it owns versus leases. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and anticipates commencement of adoption planning in the fourth fiscal quarter of 2018.

FASB ASU No. 2016-06. In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815) – Contingent Put and Call Options in Debt Instruments (“ASU 2016-06”), which will reduce diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature of an exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The adoption of ASU No. 2016-06 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2016-08. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)(“ASU 2016-08”). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

FASB ASU No. 2016-09. In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. The adoption ASU No. 2016-09 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2016-10. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”). ASU 2016-10 provides further implementation guidance on identifying performance obligations and also improves the operability and understandability of the licensing implementation guidance. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

FASB ASU No. 2016-13. In June 2016, the FASB issued Accounting Standard Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. This guidance is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.

F-20

FASB ASU No. 2016-15. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

FASB ASU No. 2017-04. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments of this ASU eliminate step 2 from the goodwill impairment test. The annual, or interim test is performed by comparing the fair value of a reporting unit with its carrying amount. The amendments of this ASU also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and if it fails that qualitative test, to perform step 2 of the goodwill impairment test. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.

3. FAIR VALUE ACCOUNTING

The Company accounts for fair value measurements in accordance with ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

	Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

	Level 2	Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

	Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

F-21

	Fair Value at December 31, 2016
($ in thousands)	Total	Level 1	Level 2	Level 3
Assets:
Pension assets	$1,645	$1,645	$—	$—
Totals	$1,645	$1,645	$—	$—

	Fair Value at December 31, 2015
($ in thousands)	Total	Level 1	Level 2	Level 3
Assets:
Pension assets	$1,557	$1,557	$—	$—
Totals	$1,557	$1,557	$—	$—

The Company’s pension assets are classified within Level 1 of the fair value hierarchy because they are valued using market prices. The pension assets are primarily comprised of the cash surrender value of insurance contracts. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The investment objectives for the plan are the preservation of capital, current income and long-term growth of capital.

The Company monitors the activity within each level and any changes with the underlying valuation techniques or inputs utilized to recognize if any transfers between levels are necessary. That determination is made, in part, by working with outside valuation experts for Level 3 instruments and monitoring market related data and other valuation inputs for Level 1 and Level 2 instruments.

4. INTANGIBLE ASSETS AND GOODWILL

The Company has intangible assets in the form of trademarks, trade names and patents. The carrying amount of the Company’s acquired trademarks and trade names was $0 as of December 31, 2016 and 2015, respectively, which include accumulated amortization of $347,000 as of December 31, 2016 and 2015. Amortization expense related to trademarks and tradenames was $0, $15,000 and $15,000 for the years ended December 31, 2016, 2015 and 2014, respectively. All intangible assets are amortized over their estimated useful lives with no estimated residual values. Any costs incurred by the Company to renew or extend the life of intangible assets will be evaluated under ASC No. 350, Intangibles – Goodwill and Other, for proper treatment.

The carrying amounts of the Company’s patent intangible assets were $105,000 and $117,000 as of December 31, 2016 and 2015, respectively, which includes accumulated amortization of $554,000 and $542,000 as of December 31, 2016 and 2015, respectively. Amortization expense for patent intangible assets was $12,000 for the years ended December 31, 2016, 2015 and 2014. Patent intangible assets are being amortized on a straight-line basis over their remaining life of approximately 9.5 years. There was no impairment of the Company's intangible assets during the years ended December 31, 2016, 2015 and 2014.

The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment. The Company performs its annual impairment test in the fourth quarter of each year. A two-step impairment test is used to first identify potential goodwill impairment and then measure the amount of goodwill impairment loss, if any. The first step was conducted by determining and comparing the fair value, employing the market approach, of the Company’s reporting unit to the carrying value of the reporting unit. The Company continues to have only one reporting unit, Identity Management. Based on the results of this impairment test, the Company determined that its goodwill was not impaired during the years ended December 31, 2016, 2015 and 2014.

F-22

The estimated acquired intangible amortization expense for the next five fiscal years is as follows:

Fiscal Year Ended December 31,	Estimated Amortization Expense ($ in thousands)
2017	$12
2018	12
2019	12
2020	12
2021	12
Thereafter	45
Totals	$105

5. RELATED PARTIES

Related Party Convertible Notes

On November 14, 2008, the Company entered into a series of convertible promissory notes (the “Related-Party Convertible Notes”), aggregating $110,000 with certain officers and members of the Company’s Board of Directors, including S. James Miller, the Company’s Chief Executive Officer and Chairman. The Related-Party Convertible Notes bear interest at 7.0% per annum and were originally due February 14, 2009. In conjunction with the original issuance of the Related-Party Convertible Notes in 2008, the Company issued an aggregate of 149,996 warrants to the note holders to purchase shares of Common Stock of the Company. The warrants have an exercise price $0.50 per share and may be exercised at any time from November 14, 2008 until November 14, 2013. No warrants to purchase shares of Common Stock were outstanding and exercisable as of December 31, 2015, and no warrants were issued and outstanding as of December 31, 2015.

The Company did not repay the Related-Party Convertible Notes on the due date. In August 2009, the Company received from the Related-Party Convertible Note holders a waiver of default and extension to January 31, 2010 of the maturity date of the Related-Party Convertible Notes. As consideration for the waiver and note extension, the Company issued to the Related-Party Convertible Note holders an aggregate of 150,000 warrants to purchase shares of the Company’s Common Stock. The warrants have an exercise price of $0.50 per share and expire on August 25, 2014, of which no warrants to purchase shares of Common Stock were outstanding and exercisable as of December 31, 2016.

On January 21, 2013, the holders of the Related-Party Convertible Notes agreed to extend the due date on their respective convertible notes to be due and payable not later than June 30, 2015, however, the Related-Party Convertible Notes will be callable at any time, at the option of the note holder, prior to June 30, 2015. During the year ended December 31, 2014, holders of Related-Party Convertible Notes in the principal amount of $85,034 elected to convert their respective Related-Party Convertible Notes into 154,607 shares of Common Stock.

Lines of Credit

In March 2013, the Company and Holder entered into the Goldman Line of Credit with available borrowings of up to $2.5 million. In March 2014, the Goldman Line of Credit’s borrowing was increased to an aggregate total of $3.5 million (the “Amendment”). Pursuant to the terms and conditions of the Amendment, the Holder had the right to convert up to $2.5 million of the outstanding balance of the Goldman Line of Credit into shares of the Company's Common Stock for $0.95 per share. Any remaining outstanding balance was convertible into shares of the Company's Common Stock for $2.25 per share.

F-23

During the years ended December 31, 2016, 2015 and 2014, the Company recorded an aggregate of approximately $48,000, $53,000 and $369,000, respectively in deferred financing fee amortization expense which is recorded as a component of interest expense in the Company’s consolidated statements of operations.

In April 2014, the Company and the Holder entered into a further amendment to the Goldman Line of Credit to decrease the available borrowings to $3.0 million (the “Second Amendment”). Contemporaneous with the execution of the Second Amendment, the Company entered into a new unsecured line of credit with the Second Holder with available borrowings of up to $500,000 (the “Crocker LOC”), which amount was convertible into shares of the Company’s Common Stock for $2.25 per share. As a result of these amendments, total available borrowings under the Lines of Credit available to the Company remained unchanged at a total of $3.5 million. In connection with the Second Amendment, the Holder assigned and transferred to the Second Holder one-half of the Amendment Warrant.

In December 2014, the Company and the Holder entered into a further amendment to the Goldman Line of Credit to increase the available borrowing to $5.0 million and extend the maturity date of the Goldman Line of Credit to March 27, 2017 (the “Third Amendment”). Also, as a result of the Third Amendment, the Holder had the right to convert up to $2.5 million outstanding principal, plus any accrued but unpaid interest (“Outstanding Balance”) into shares of the Company’s Common Stock for $0.95 per share, the next $500,000 Outstanding Balance into shares of Common Stock for $2.25 per share and any remaining outstanding balance thereafter into shares of Common Stock for $2.30 per share. The Third Amendment also modified the definition of a “Qualified Financing” to mean a debt or equity financing resulting in gross proceeds to the Company of at least $5.0 million.

In February 2015, as a result of the Series E Financing, the Company issued 1,978 shares of Series E Preferred to the Holder to satisfy $1,950,000 in principal borrowings under the Goldman Line of Credit plus approximately $28,000 in accrued interest. As a result of the Series E Financing, the Company’s borrowing capacity under the Goldman Line of Credit was reduced to $3,050,000 with the maturity date unchanged and the $500K Line of Credit was terminated in accordance with its terms.

F-24

The following table sets forth the Company’s activity under its Lines of Credit for the periods indicated:

Balance outstanding under Lines of Credit as of December 31, 2014	$1,550
Borrowing under Lines of Credit	750
Repayments	(350)
Exchange of Indebtedness for Series E Preferred Stock	(1,950)
Balance outstanding under Lines of Credit as of December 31, 2015	$—
Borrowings under Lines of Credit	2,650
Repayments	—
Balance outstanding under Lines of Credit as of December 31, 2016	$2,650

6. INVENTORY

Inventories of $23,000 as of December 31, 2016 were comprised of work in process of $19,000 representing direct labor costs on in-process projects and finished goods of $4,000 net of reserves for obsolete and slow-moving items of $3,000.

Inventories of $46,000 as of December 31, 2015 were comprised of work in process of $42,000, representing direct labor costs on in-process projects, approximately $21,000 of equipment related to in-process projects and finished goods of $4,000 net of reserves for obsolete and slow-moving items of $3,000. The balance of direct labor costs on in-process projects of $42,000 at December 31, 2015, reflects a write down of approximately $261,000 to net realizable value.

Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value and required reserve levels.

F-25

7. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2016 and 2015, consists of:

($ in thousands)	2016	2015

Equipment	$935	$887
Leasehold improvements	11	11
Furniture	101	101
	1,047	999
Less accumulated depreciation	(954)	(837)
	$93	$162

Total depreciation expense for the years ended December 31, 2016, 2015 and 2014 was approximately $117,000, $137,000 and $152,000, respectively.

8. ACCRUED EXPENSES

Principal components of accrued expenses consist of:

($ in thousands)	December 31, 2016	December 31, 2015

Compensated absences	$313	$260
Wages, payroll taxes and sales commissions	28	11
Customer deposits	198	69
Liquidated damages	—	200
Royalties	147	147
Pension and employee benefit plans	7	6
Income and sales taxes	161	131
Dividends	27	261
Interest payable to related parties	102	—
Other	64	64
	$1,047	$1,149

9. LINES OF CREDIT

Outstanding lines of credit consist of the following:

($ in thousands)	December 31, 2016	December 31, 2015
Lines of Credit
8% convertible lines of credit. Face value of advances under lines of credit $2,650 at December 31, 2016 and $0 at December 31, 2015, respectively. Discount on advances under lines of credit is $122 at December 31, 2016 and $0 at December 31, 2015, respectively. Maturity date is December 31, 2017.	$2,528	$—

Total lines of credit to related parties	2,528	—
Less current portion	(2,528)	—
Long-term lines of credit to related parties	$—	$—

Lines of Credit

For a more detailed discussion of the Company’s Lines of Credit, see Note 5 Related Parties.

F-26

10. INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, (ASC 740). Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established when necessary based on the weight of available evidence, if it is considered more likely than not that all or some portion of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities. The Company has established a valuation allowance against its deferred tax asset due to the uncertainty surrounding the realization of such asset.

ASC 740 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. The amount accrued for uncertain tax positions was zero at December 31, 2016, 2015 and 2015, respectively.

The Company’s uncertain position relative to unrecognized tax benefits and any potential increase in these liabilities relates primarily to the allocations of revenue and costs among the Company’s global operations and the impact of tax rulings made during the period affecting its tax positions. The Company’s existing tax position could result in liabilities for unrecognized tax benefits. The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties accrued as of December 31, 2016 and 2015 was approximately $12,000 and $11,000, respectively.

The significant components of the income tax provision are as follows:

($ in thousands)	Year Ended December 31,
Current	2016	2015	2014
Federal	$—	$—	$—
State	—	—	—
Foreign	21	22	25

Deferred
Federal	—	—	—
State	—	—	—
Foreign	—	—	—

	$21	$22	$25

F-27

The principal components of the Company’s deferred tax assets at December 31, 2016, 2015 and 2014 are as follows:

($ in thousands)	2016	2015	2014

Net operating loss carryforwards	$17,829	$15,948	$14,200
Intangible and fixed assets	102	220	427
Stock based compensation	2,324	1,861	1,565
Reserves and accrued expenses	8	8	6
Other	—	—	(85)
	20,263	18,037	16,113
Less valuation allowance	(20,263)	(18,037)	(16,113)

Net deferred tax assets	$—	$—	$—

A reconciliation of the provision for income taxes to the amount computed by applying the statutory income tax rates to loss before income taxes is as follows:

	2016	2015	2014

Amounts computed at statutory rates	$(3,239)	$(2,902)	$(2,699)
State income tax, net of federal benefit	(462)	(262)	(212)
Expiration of net operating loss carryforwards	1,082	695	708
Non-deductible interest	49	149	145
Foreign taxes	362	413	386
Other	3	5	4
Net change in valuation allowance on deferred tax assets	2,226	1,924	1,693

	$21	$22	$25

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

At December 31, 2016, 2015 and 2014, the Company had federal and state net operating loss carryforwards, a portion of which may be available to offset future taxable income for tax purposes. The federal net operating loss carryforwards expire at various dates from 2021 through 2036. The state net operating loss carryforwards expire at various dates from 2029 through 2036.

The Internal Revenue Code (the "Code") limits the availability of certain tax credits and net operating losses that arose prior to certain cumulative changes in a corporation’s ownership resulting in a change of control of the Company. The Company’s use of its net operating loss carryforwards and tax credit carryforwards will be significantly limited because the Company believes it underwent “ownership changes”, as defined under Section 382 of the Internal Revenue Code, in 1991, 1995, 2000, 2003, 2004, 2011 and 2012, though the Company has not performed a study to determine the limitation. The Company has reduced its deferred tax assets to zero relating to its federal and state research credits because of such limitations. The Company continues to disclose the tax effect of the net operating loss carryforwards at their original amount in the table above as the actual limitation has not yet been quantified. The Company has also established a full valuation allowance for substantially all deferred tax assets due to uncertainties surrounding its ability to generate future taxable income to realize these assets. Since substantially all deferred tax assets are fully reserved, future changes in tax benefits will not impact the effective tax rate. Management periodically evaluates the recoverability of the deferred tax assets. If it is determined at some time in the future that it is more likely than not that deferred tax assets will be realized, the valuation allowance would be reduced accordingly at that time.

Tax returns for the years 2012 through 2016 are subject to examination by taxing authorities.

F-28

11. COMMITMENTS AND CONTINGENCIES

Employment Agreements

The Company has employment agreements with its Chief Executive Officer, its Senior Vice President of Administration and Chief Financial Officer, and its Chief Technical Officer. The Company may terminate the agreements with or without cause. Subject to the conditions and other limitations set forth in each respective employment agreement, each executive will be entitled to the following severance benefits if the Company terminates the executive’s employment without cause or in the event of an involuntary termination (as defined in the employment agreements) by the Company or by the executive:

Under the terms of the agreement, the Chief Executive Officer will be entitled to the following severance benefits if we terminate his employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to twenty-four months base salary; (ii) continuation of fringe benefits and medical insurance for a period of three years; and (iii) immediate vesting of 50% of outstanding stock options and restricted stock awards. In the event that the Chief Executive Officer’s employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), the Chief Executive Officer is entitled to the severance benefits described above, except that 100% of the Chief Executive Officer’s outstanding stock options and restricted stock awards will immediately vest.

Under the terms of the employment agreements with our Senior Vice President of Administration and Chief Financial Officer, this executive will be entitled to the following severance benefits if we terminate their employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to six month's of base salary; (ii) continuation of their fringe benefits and medical insurance for a period of six months; (iii) immediate vesting of 50% of their outstanding stock options and restricted stock awards. In the event that their employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), they are entitled to the severance benefits described above, except that 100% of their outstanding stock options and restricted stock awards will immediately vest.

Under the terms of the employment agreement with our Chief Technical Officer, this executive will be entitled to the following severance benefits if we terminate his employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to six months of base salary; (ii) continuation of their fringe benefits and medical insurance for a period of six months. In the event that his employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), he is entitled to the severance benefits described above, except that 100% of his outstanding stock options and restricted stock awards will immediately vest.

On December 28, 2016, the Company entered into amendments to the employment agreements for the Company’s Chief Executive Officer, Chief Financial Officer, and Chief Technical Officer. Effective October 20, 2016, the term of each executive officer's employment agreement was extended until December 31, 2017.

Litigation

There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

F-29

Leases

The Company’s corporate headquarters are located in San Diego, California where we occupy 9,927 square feet of office space. This facility is leased through October 2017 at a cost of approximately $18,000 per month. In addition to our corporate headquarters, we also occupied the following spaces at December 31, 2016:

●

8,045 square feet in Portland, Oregon, at a cost of approximately $16,000 per month until the expiration of the lease on October 31, 2018; and

●

304 square feet of office space in Mexico City, Mexico, at a cost of approximately $3,000 per month until November 30, 2017.

At December 31, 2016, future minimum lease payments are as follows:

($ in thousands)
2017	$450
2018	201
2019	34
2020	34
2021	9
Total	$728

Rental expense incurred under operating leases for the years ended December 31, 2016, 2015 and 2014 was approximately $492,000, $477,000 and $430,000, respectively.

12. 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 Convertible Redeemable Preferred Stock (“Series B Preferred”) outstanding as of December 31, 2016 and 2015. At December 31, 2016 and 2015, the Company had cumulative undeclared dividends of approximately $8,000 ($0.03 per share). There were no conversions of Series B Preferred into Common Stock during the years ended December 31, 2016, 2015 and 2014. The Company paid dividends of approximately $51,000 to the holders of our Series B Preferred in 2016, 2015 and 2014.

Series E Convertible Redeemable Preferred Stock

On January 29, 2015, the Company filed the Certificate of Designations of the Series E Preferred Stock with the Delaware Secretary of State, designating 12,000 shares of the Company’s preferred stock, par value $0.01 per share, as Series E Preferred. Shares of Series E Preferred accrue dividends at a rate of 8% per annum if the Company chooses to pay accrued dividends in cash, and 10% per annum if the Company chooses to pay accrued dividends in shares of Common Stock. Each share of Series E Preferred has a liquidation preference of $1,000 per share and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Liquidation Preference, divided by $1.90. The Series E Preferred shall be subordinate to and rank junior to the Company's Series B Preferred and all indebtedness of the Company. Each holder of the Series E Preferred is entitled to vote on all matters, together with the holders of Common Stock, on an as converted basis.

F-30

Any time after the six-month period following the issuance date, the Company may redeem all or a portion of the Series E Preferred outstanding upon thirty (30) calendar day's prior written notice (the “Company's Redemption Notice”) in cash at a price per share of Series E Preferred equal to 110% of the liquidation preference amount plus all accrued and unpaid dividends. Also, simultaneous with the occurrence of a change of control transaction, the Company, at its option, shall have the right to redeem all or a portion of the outstanding Series E Preferred in cash at a price per share of Series E Preferred equal to 110% of the liquidation preference amount plus all accrued and unpaid dividends.

In February 2015, the Company consummated a registered direct offering conducted without an underwriter or placement agent. In connection therewith, the Company issued 12,000 shares of Series E Preferred to certain investors at a price of $1,000 per share, with each share convertible into 526.32 shares of the Company’s Common Stock at $1.90 per share.

On December 29, 2016, the Company filed Amendment No. 1 to the Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock (the “Series E Amendment”) with the Delaware Division of Corporations. The Series E Amendment made the following changes to the Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock: (i) the Company may only make dividend payments in cash received from positive cash flow from operations; (ii) beginning on July 1, 2017, in the event the Company pays accrued dividend payments in shares of Common Stock for more than four consecutive quarterly periods, holders of shares of Series E Preferred will have the right to immediately appoint two designees to the Company’s Board of Directors (the “ Director Appointment Provision ”); (iii) dividend payments incurred on December 31, 2016 and March 31, 2017 may be paid in shares of Common Stock, without triggering the Director Appointment Provision; and (iv) the term Permitted Indebtedness (as defined in the Series E Certificate of Designations) was revised to cover permitted borrowings of up to $6.0 million.

The Company had 12,000 shares of Series E Preferred outstanding as of December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, the Company had cumulative undeclared dividends of approximately $0 and $240,000, respectively. There were no conversions of Series E Preferred into Common Stock during the twelve months ended December 31, 2016. For the twelve-month period ended December 31, 2016, the Company issued the holders of Series E Preferred 950,362 shares of Common Stock as payment of dividends due, on a quarterly basis, for the twelve months ended December 31, 2016. For the twelve months ended December 31, 2015, the Company paid the holders of our Series E Preferred cash dividends of $240,000 and issued the holders of our Series E Preferred 478,664 shares of common stock as payment of quarterly dividends for the period of January 1, 2015 through September 30, 2015.

Series F Convertible Redeemable Preferred Stock

In September 2016, we filed the Certificate of Designations, Preferences, and Rights of the Series F Convertible Preferred Stock (the “Certificate of Designations”) with the Delaware Division of Corporations, designating 2,000 shares of our preferred stock as Series F Convertible Redeemable Preferred Stock (“Series F Preferred”). Shares of Series F Preferred rank junior to shares of Series B Preferred and Series E Preferred, as well as our existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of Common Stock.

Each share of Series F Preferred has a liquidation preference of $1,000 per share (“Liquidation Preference”), and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Series F Liquidation Preference, divided by $1.50 (the “Series F Conversion Shares”).

Any time after the six-month period following the issuance date, in the event the arithmetic average of the closing sales price of the Company’s Common Stock is or was at least $2.50 for twenty (20) consecutive trading days, the Company may redeem all or a portion of the Series F Preferred outstanding upon thirty (30) calendar days prior written notice in cash at a price per share of Series F Preferred equal to 110% of the Series F Liquidation Preference, plus all accrued and unpaid dividends. Also, simultaneous with the occurrence of a Change of Control transaction (as defined in the Certificate of Designations), the Company, at its option, shall have the right to redeem all or a portion of the outstanding Series F Preferred in cash at a price per share of Series F Preferred equal to 110% of the Liquidation Preference Amount plus all accrued and unpaid dividends.

In September 2016, the Company offered and sold 2,000 shares of Series F Preferred for $1,000 per share (the “Series F Financing”), resulting in gross proceeds to the Company of $2,000,000 net of issuance costs of approximately $21,000.

The Company had 2,000 shares of Series F Preferred outstanding as of December 31, 2016 and no shares outstanding at December 31, 2015. At December 31, 2016, the Company had cumulative undeclared dividends of $0. There were no conversions of Series F Preferred into Common Stock during the year ended December 31, 2016. The Company issued the holders of Series F Preferred 48,513 shares of Common Stock as payment of dividends due, on a quarterly basis, for the twelve months ended December 31, 2016.

F-31

Series G Convertible Redeemable Preferred Stock

In December 27, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series G Convertible Preferred Stock with the Delaware Division of Corporations, designating 6,120 shares of the Company’s preferred stock, par value $0.01 per share, as Series G Convertible Preferred Stock (“Series G Preferred”). Shares of Series G Preferred rank junior to the Company’s Series B Preferred, Series E Preferred, Series F Preferred as well as the Company’s existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Company’s common stock, par value $0.01 per share. Each share of Series G Preferred has a liquidation preference of $1,000 per share (“Series G Liquidation Preference”), and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Series G Liquidation Preference, divided by $1.50.

On December 29, 2016, the Company accepted subscription forms from certain accredited investors to purchase a total of 1,625 shares of Series G Preferred for $1,000 per share (the “Series G Financing”), resulting in gross proceeds to the Company of $1,625,000, net of issuance cost of approximately $11,000. In addition, the Company also received executed exchange agreements from the Investors pursuant to which the Company exchanged an aggregate total of 3,383,830 shares of common stock held by the Investors for an aggregate total of 4,396 shares of Series G Preferred.

The Company had 6,021 shares of Series G Preferred outstanding as of December 31, 2016 and no shares outstanding at December 31, 2015. At December 31, 2016, the Company had cumulative undeclared dividends of $0. There were no conversions of Series G Preferred into Common Stock during the year ended December 31, 2016. The Company issued the holders of Series G Preferred 3,770 shares of Common Stock as payment of dividends due, on a quarterly basis, for the twelve months ended December 31, 2016.

Common Stock

The following table summarizes outstanding Common Stock activity for the following periods:

	Common Stock

Shares outstanding at December 31, 2013	87,548,613
Shares issued pursuant to warrants exercised for cash	4,742,632
Shares issued pursuant to cashless warrants exercised	868,565
Conversion of related-party notes payable into Common Stock	154,607
Shares issued as compensation in lieu of cash	94,116
Shares issued pursuant to option exercises	98,617
Shares outstanding at December 31, 2014	93,507,150
Shares issued pursuant to payment of stock dividend on Series E Preferred	478,664
Shares issued pursuant to cashless warrants exercised	45,376
Shares issued pursuant to option exercises	39,705
Shares outstanding at December 31, 2015	94,070,895
Shares issued pursuant to payment of stock dividend on Series E Preferred	950,362
Shares issued pursuant to payment of stock dividend on Series F Preferred	48,513
Shares issued pursuant to payment of stock dividend on Series G Preferred	3,770
Shares issued pursuant to cashless warrants exercised	144,459
Shares issued pursuant to option exercises	12,626
Exchange of common shares for Series G Preferred	(3,383,830)
Shares outstanding at December 31, 2016	91,846,795

F-32

Warrants

As of December 31, 2016, warrants to purchase 175,000 shares of Common Stock at prices ranging from $0.80 to $1.10 were outstanding. All warrants are exercisable as of December 31, 2016 and expire as of September 1, 2017, with the exception of an aggregate of 150,000 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, 2013	6,598,416	$0.63
Granted	302,778	$2.02
Expired / Canceled	(55,000)	$1.10
Exercised	(5,868,416)	$0.58
Balance at December 31, 2014	977,778	$1.22
Granted	—	$0.00
Expired / Canceled	(419,444)	$1.86
Exercised	(108,334)	$1.01
Balance at December 31, 2015	450,000	$0.67
Exercised	(275,000)	0.55
Balance at December 31, 2016	175,000	0.84

During the year ended December 31, 2015, the Company modified 200,000 warrants previously issued to a consultant by eliminating certain performance condition requirements resulting in such warrants vesting pursuant to the passage of time. The Company determined the modification date fair value of the vested warrants using the Black-Scholes option valuation model and recorded approximately $80,000 in expense for the year ended December 31, 2015. The Company used the following assumptions in the application of the Black-Scholes option valuation modes: an exercise price of $1.72, a term of 0.77 years, a risk-free interest rate of 2.58%, a dividend yield of 0% and volatility of 64%. Such expense is recorded in the Company’s consolidated statement of operations as a component of sales and marketing expense. There were no warrant modifications during the year ended December 31, 2016.

During the year ended December 31, 2016, there were 275,000 warrants exercised pursuant to cashless transactions resulting in the issuance of 144,459 shares of Common Stock. The intrinsic value of warrants outstanding as of December 31, 2016 was approximately $85,000.

F-33

13. STOCK-BASED COMPENSATION

Stock Options

As of December 31, 2016, the Company had one active stock-based compensation plan: the 1999 Stock Option Plan (the “1999 Plan”).

1999 Plan

The 1999 Plan was adopted by the Company’s Board of Directors on December 17, 1999. Under the terms of the 1999 Plan, the Company could, originally, issue up to 350,000 non-qualified or incentive stock options to purchase Common Stock of the Company. During the year ended December 31, 2014, the Company subsequently amended and restated the 1999 Plan whereby it increased the share reserve for issuance to approximately 7.0 million shares of the Company’s Common Stock. The 1999 Plan prohibits the grant of stock option or stock appreciation right awards with an exercise price less than fair market value of Common Stock on the date of grant. The 1999 Plan also generally prohibits the “re-pricing” of stock options or stock appreciation rights, although awards may be bought-out for a payment in cash or the Company’s stock. The 1999 Plan permits the grant of stock based awards other than stock options, including the grant of “full value” awards such as restricted stock, stock units and performance shares. The 1999 Plan permits the qualification of awards under the plan (payable in either stock or cash) as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code. The number of options issued and outstanding and the number of options remaining available for future issuance are shown in the table below. On July 1, 2014, the Company began soliciting written consents from its shareholders to approve an amendment to the Company’s 1999 Stock Option Plan to increase the number of shares authorized for issuance thereunder from approximately 4.0 million to approximately 7.0 million (the “Amendment”). As of July 21, 2014, the Company had received written consents approving the Amendment from over 50% of the Company’s stockholders. As such, the Amendment was approved. The number of authorized shares available under the plan for issuance at December 31, 2016 was 6,562,781. The number of available shares under the plan for issuance at December 31, 2016 was 55,938.

A summary of the activity under the Company’s stock option plans is as follows:

	Options	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (Years)
Balance at December 31, 2013	3,783,411	$0.94	7.4
Granted	435,000	$2.13	—
Expired/Cancelled	(62,498)	$1.96	—
Exercised	(98,617)	$0.68	—

Balance at December 31, 2014	4,057,296	$1.06	6.8
Granted	2,110,000	$1.63	—
Expired/Cancelled	(750,622)	$1.86	—
Exercised	(39,705)	$0.87	—

Balance at December 31, 2015	5,376,969	$1.17	6.9
Granted	1,264,000	$ 1.34	-
Expired/Cancelled	(121,500)	$1.29	-
Exercised	(12,626)	$ 0.21	-
Balance at December 31, 2016	6,506,843	$1.21	6.6

F-34

At December 31, 2016, a total of 6,506,843 options were outstanding of which 4,366,374 were exercisable at a weighted average price of $1.08 per share with a remaining weighted average contractual term of approximately 6.8 years. The Company expects that, in addition to the 4,366,374 options that were exercisable as of December 31, 2016, another 2,080,563 will ultimately vest resulting in a combined total of 6,446,937. Those 6,446,937 shares have a weighted average exercise price of $1.20 and an aggregate intrinsic value of approximately $1,740,000 as of December 31, 2016. Stock-based compensation expense related to equity options was approximately $1,162,000, $744,000 and $618,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

The weighted-average grant-date fair value per share of options granted to employees during the years ended December 31, 2016, 2015 and 2014 was $0.82, $1.18 and $1.37, respectively. At December 31, 2016, the total remaining unrecognized compensation cost related to unvested stock options amounted to approximately $1,719,849, which will be amortized over the weighted-average remaining requisite service period of 2.1 years.

During the year ended December 31, 2016, there were 12,626 options exercised for cash resulting in the issuance of 12,626 shares of the Company’s Common Stock and proceeds of approximately $3,000. During the year ended December 31, 2015, there were 39,705 options exercised for cash resulting in the issuance of 39,705 shares of the Company’s Common Stock and proceeds of approximately $34,000.

The intrinsic value of options exercised during the years ended December 31, 2016 and 2015 was approximately $11,000 and $35,000, respectively. The intrinsic value of options exercisable at December 31, 2016 and 2015 was approximately $1,679,000 and $1,575,000, respectively. The intrinsic value of options that vested during 2016 was approximately 34,000. The aggregate intrinsic value for all options outstanding as of December 31, 2016 and 2015 was approximately $1,744,000 and $1,652,000, respectively.

In September 2016, the Company issued an aggregate of 168,000 options to purchase shares of the Company’s Common Stock to certain members of the Company’s Board of Directors in return for their service from January 1, 2017 through December 31, 2017. Such options will vest at the rate of 14,000 options per month on the last day of each month during the 2017 year. The options have an exercise price of $1.37 per share and a term of 10 years. The Company will begin recognition of compensation based on the grant-date fair value ratably over the 2017 requisite service period.

In September 2015, the Company issued an aggregate of 144,000 options to purchase shares of the Company’s Common Stock to certain members of the Company’s Board of Directors in return for their service from January 1, 2016 through December 31, 2016. Such options vest at the rate of 12,000 options per month on the last day of each month during the 2016 year. The options have an exercise price of $1.73 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $178,000 the twelve months ended December 31, 2016 based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model.

In May 2016, the Company issued an aggregate of 16,000 options to purchase shares of the Company’s Common Stock to a new member of the Company’s Board of Directors in return for their service from May 2016 through December 31, 2016. Such options vest at the rate of 2,000 options per month on the last day of each month during the 2016 year. The options have an exercise price of $1.29 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $12,000 for the twelve months ended December 31, 2016 based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model.

Restricted Stock Awards

There were no restricted stock awards issued during the years ended December 31, 2016 and 2015.

In December 2014, the Company issued 94,116 shares of its Common Stock to certain members of the Company’s Board of Directors as compensation for services to be rendered through December 2015. Such shares vested monthly over the 12 months of 2015 with any unvested shares being forfeitable should the Board members’ service be terminated during 2015. For the year ended December 31, 2015, the Company recorded approximately $216,000 as compensation expense related to this stock issuance.

In December 2013, the Company issued 144,000 shares of its Common Stock to certain members of the Company's Board of Directors as compensation for services to be rendered through December 2014. Such shares are forfeitable should the Board members' service be terminated. For the year ended December 31, 2014, the Company recorded approximately $238,000 as compensation expense.

F-35

Stock-based Compensation

Stock-based compensation related to equity options and restricted stock has been classified as follows in the accompanying consolidated statements of operations (in thousands):

	Year Ended December 31,
	2016	2015	2014
Cost of revenues	$20	$15	$12
General and administrative	714	618	572
Sales and marketing	224	171	142
Research and development	204	156	130

Total	$1,162	$960	$856

Common Stock Reserved for Future Issuance

The following table summarizes the Common Stock reserved for future issuance as of December 31, 2016:

	Common Stock

Convertible preferred stock – Series B, Series E, Series F and Series G	11,709,151
Convertible lines of credit	2,201,903
Stock options outstanding	6,506,843
Warrants outstanding	175,000
Authorized for future grant under stock option plans	55,938
	20,648,835

14. EMPLOYEE BENEFIT PLAN

During 1995, the Company adopted a defined contribution 401(k) retirement plan (the “Plan”). All U.S. based employees aged 21 years and older are eligible to become participants after the completion of 60 day's employment. The Plan provides for annual contributions by the Company of 50% of employee contributions not to exceed 8% of employee compensation. Effective April 1, 2009, the Plan was amended to provide for Company contributions on a discretionary basis. Participants may contribute up to 100% of the annual contribution limitations determined by the Internal Revenue Service.

Employees are fully vested in their share of the Company’s contributions after the completion of five years of service. In 2014, the Company authorized contributions of approximately $118,000 for the 2014 plan year of which $88,000 were paid prior to December 31, 2014. In 2015, the Company authorized contributions of approximately $119,000 for the 2015 plan year of which $83,000 were paid prior to December 31, 2015. In 2016, the Company authorized contributions of approximately $150,000 for the 2016 plan year of which $111,000 were paid prior to December 31, 2016.

15. PENSION PLAN

One of the Company’s dormant foreign subsidiaries maintains a defined benefit pension plan that provides benefits based on length of service and final average earnings. The following table sets forth the benefit obligation, fair value of plan assets, and the funded status of the Company’s plan; amounts recognized in the Company’s consolidated financial statements; and the assumptions used in determining the actuarial present value of the benefit obligations as of December 31:

F-36

($ in thousands)	2016	2015	2014
Change in benefit obligation:
Benefit obligation at beginning of year	$3,068	$3,488	$2,821
Service cost	—	—	—
Interest cost	75	70	106
Actuarial (gain) loss	542	(123)	1,003
Effect of exchange rate changes	(114)	(356)	(442)
Effect of curtailment	—	—	—
Benefits paid	(31)	(11)	—
Benefit obligation at end of year	3,540	3,068	3,488

Change in plan assets:
Fair value of plan assets at beginning of year	1,557	1,654	1,790
Actual return of plan assets	142	40	47
Company contributions	28	34	43
Benefits paid	(31)	—	—
Effect of exchange rate changes	(51)	(171)	(226)
Fair value of plan assets at end of year	1,645	1,557	1,654
Funded status	(1,895)	(1,511)	(1,834)
Unrecognized actuarial loss (gain)	1,831	1,413	1,911
Unrecognized prior service (benefit) cost	—	—	—
Additional minimum liability	(1,831)	(1,413)	(1,911)
Unrecognized transition (asset) liability	—	—	—
Net amount recognized	$(1,895)	$(1,511)	$(1,834)

Plan Assets
Pension plan assets were comprised of the following asset categories at December 31,
Equity securities	5.7%	5.0%	6.4%
Debt securities	87.2%	89.3%	87.4%
Other	7.1%	5.7%	6.2%
Total	100%	100%	100%

Components of net periodic benefit cost are as follows:
Service cost	$—	$—	$—
Interest cost on projected benefit obligations	75	70	106
Expected return on plan assets	—	—	—
Amortization of prior service costs	—	—	—
Amortization of actuarial loss	—	—	—
Net periodic benefit costs	$75	$70	$106

The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were
Discount rate	1.7%	2.4%	2.2%
Expected return on plan assets	4.0%	4.0%	4.0%
Rate of pension increases	2.0%	2.0%	2.0%
Rate of compensation increase	N/A	N/A	N/A

The following discloses information about the Company’s defined benefit pension plan that had an accumulated benefit obligation in excess of plan assets as of December 31,
Projected benefit obligation	$3,540	$3,068	$3,488
Accumulated benefit obligation	$3,540	$3,068	$3,488
Fair value of plan assets	$1,645	$1,557	$1,654

F-37

As of December 31, 2016, the following benefit payments are expected to be paid as follows (in thousands):

2017	$76
2018	$78
2019	$80
2020	$81
2021	$97
2022 — 2026	$624

The Company made contributions to the plan of approximately $28,000 during year 2016, $34,000 during year 2015 and approximately $43,000 during 2014.

The investment objectives for the plan are the preservation of capital, current income and long-term growth of capital. The Company’s pension assets are classified within Level 1 of the fair value hierarchy, as defined under ASC 820, because they are valued using market prices. The pension assets are primarily comprised of the cash surrender value of insurance contracts. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The measurement date used to determine the benefit information of the plan was January 1, 2017.

16. ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive income is the combination of the additional minimum liability related to the Company’s defined benefit pension plan, recognized pursuant to ASC 715-30, “Compensation - Retirement Benefits - Defined Benefit Plans – Pension” and the accumulated gains or losses from foreign currency translation adjustments. The Company translates foreign currencies of its German, Canadian and Mexican subsidiaries into U.S. dollars using the period end exchange rate. Revenue and expenses were translated using the weighted-average exchange rates for the reporting period. All items are shown net of tax.

As of December 31, 2016, 2015 and 2014, the components of accumulated other comprehensive loss were as follows:

($ in thousands)	2016	2015	2014

Additional minimum pension liability	$(1,338)	$(991)	$(1,323)
Foreign currency translation adjustment	(205)	(204)	(271)
Ending balance	$(1,543)	$(1,195)	$(1,594)

F-38

17. QUARTERLY INFORMATION (UNAUDITED)

The following table sets forth selected quarterly financial data for 2016, 2015 and 2014 (in thousands, except share and per share data):

	2016 (by quarter)
	1	2	3	4

Revenues	$1,043	$996	$848	$925
Cost of Sales	279	275	232	284
Operating expenses	3,028	2,995	2,955	3,226
Loss from Operations	(2,264)	(2,274)	(2,339)	(2,585)
Interest expense (income), net	11	36	89	109
Other expense (income), net	(1)	(200)	-	-
Income tax expense (benefit)	3	4	3	11
Net loss	$(2,277)	$(2,114)	$(2,431)	$(2,705)

Net loss per share:
Net loss	$(0.03)	$(0.02)	$(0.03)	$(0.03)
Preferred dividends	$(0.00)	$(0.01)	$(0.00)	$(0.00)
Basic loss per share to common shareholders	$(0.03)	$(0.03)	$(0.03)	$(0.03)
Basic weighted-average shares outstanding	94,073,367	94,298,567	94,550,721	94,779,243

	2015 (by quarter)
	1	2	3	4

Revenues	$991	$1,695	$1,181	$902
Cost of Sales	286	798	321	539
Operating expenses	2,641	2,660	2,813	2,921
Loss from Operations	(1,936)	(1,763)	(1,953)	(2,558)
Interest expense (income), net	437	(2)	1	11
Other expense (income), net	(46)	—	(99)	—
Income tax expense (benefit)	3	6	3	10
Net loss	$(2,330)	$(1,767)	$(1,858)	$(2,579)

Net loss per share:
Net loss	$(0.03)	$(0.02)	$(0.02)	$(0.03)
Preferred dividends	$(0.00)	$(0.00)	$(0.00)	$(0.00)
Basic loss per share to common shareholders	$(0.03)	$(0.02)	$(0.02)	$(0.03)
Basic weighted-average shares outstanding	93,515,640	93,674,349	93,876,339	94,070,895

F-39

	2014 (by quarter)
	1	2	3	4

Revenues	$1,063	$937	$919	$1,240
Cost of Sales	251	232	248	261
Operating expenses	2,706	2,667	2,793	2,797
Loss from Operations	(1,894)	(1,962)	(2,122)	(1,818)
Interest expense (income), net	79	105	104	128
Other expense (income), net	(283)	(5)	(1)	(8)
Income tax expense (benefit)	—	12	3	10
Net loss	$(1,690)	$(2,074)	$(2,228)	$(1,948)

Net loss per share:
Net loss	$(0.02)	$(0.02)	$(0.02)	$(0.02)
Preferred dividends	$(0.00)	$(0.00)	$(0.00)	$(0.00)
Basic loss per share to common shareholders	$(0.02)	$(0.02)	$(0.02)	$(0.02)
Basic weighted-average shares outstanding	88,604,221	91,930,400	93,162,548	93,384,834

18. SUBSEQUENT EVENTS

Subsequent to December 31, 2016, the Company has borrowed an additional $1,500,000 through March 30, 2017 under the Lines of Credit.

F-40

EX-23.1 2 ex23-1.htm CONSENTS OF EXPERTS AND COUNSEL SEC Connect

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

As independent registered public accountants, we hereby consent to the incorporation by reference in Registration Statement No. 333-180809 on Form S-8 and Registration Statement No. 333-201442 on Form S-3, of our reports dated March 30, 2017, relating to the consolidated financial statements of ImageWare Systems, Inc. and the effectiveness of ImageWare Systems, Inc.’s internal control over financial reporting, as of December 31, 2016, included in this Annual Report on Form 10-K for the year ended December 31, 2016.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

March 30, 2017

EX-31.1 3 ex31-1.htm CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF THE SARBANES-OXLY ACT OF 2002 SEC Connect

12-31-16 DRAFT

Exhibit 31.1

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

and pursuant to Rule 13a-14(a) and Rule 15d-14 under the Securities Exchange Act of 1934

I, S. James Miller, Jr., Chief Executive Officer of the Company, certify that:

1.	I have reviewed this Annual Report on Form 10-K of ImageWare Systems, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations: and

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 30, 2017	ImageWare Systems, Inc. By: /s/ S. James Miller, Jr.
	S. James Miller, Jr.
	Chief Executive Officer (Principal Executive Officer)

EX-31.2 4 ex31-2.htm CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF THE SARBANES-OXLY ACT OF 2002 SEC Connect

12-31-16 DRAFT

Exhibit 31.2

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

and pursuant to Rule 13a-14(a) and Rule 15d-14 under the Securities Exchange Act of 1934

I, Wayne Wetherell, Chief Financial Officer of the Company, certify that:

1.	I have reviewed this Annual Report on Form 10-K of ImageWare Systems, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 30, 2017	ImageWare Systems, Inc. By: /s/ Wayne Wetherell
	Wayne Wetherell
	Chief Financial Officer (Principal Financial Officer)

EX-32 5 ex32.htm CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 SEC Connect

Exhibit 32

CERTIFICATION

S. James Miller, Chief Executive Officer of ImageWare Systems, Inc. (the “Company”), and Wayne Wetherell, Chief Financial Officer of the Company, each hereby certifies pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350) that, to the best of his knowledge:

1. The Annual Report on Form 10-K of the Company for the year ended December 31, 2016 fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2. The information contained in the Annual Report on Form 10-K of the Company for the year ended December 31, 2016 fairly presents, in all material respects, the financial condition of the Company at the end of the year covered by the Annual Report and the results of operations of the Company for the period covered by the Annual Report.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 30th day of March, 2017.

	/s/ S. James Miller
	S. James Miller
	Chief Executive Officer

	/s/ Wayne Wetherell
	Wayne Wetherell
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to ImageWare Systems, Inc. and will be retained by ImageWare Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Overview  As used in this Annual Report, we, us, our, ImageWare, ImageWare Systems, Company or our Company refers to ImageWare Systems, Inc. and all of its subsidiaries. ImageWare Systems, Inc. is incorporated in the state of Delaware. The Company is a pioneer and leader in the emerging market for biometrically enabled software-based identity management solutions. Using those human characteristics that are unique to us all, the Company creates software that provides a highly reliable indication of a persons identity. The Companys flagship product is the patented IWS Biometric Engine®. The Companys products are used to manage and issue secure credentials, including national IDs, passports, driver licenses and access control credentials. The Companys products also provide law enforcement with integrated mug shot, fingerprint LiveScan and investigative capabilities. The Company also provides comprehensive authentication security software using biometrics to secure physical and logical access to facilities or computer networks or internet sites. Biometric technology is now an integral part of all markets the Company addresses and all of the products are integrated into the IWS Biometric Engine.   Recent Developments   Creation of Series G Convertible Redeemable Preferred Stock and Series G Financing   On December 27, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series G Convertible Preferred Stock with the Delaware Division of Corporations, designating 6,120 shares of the Companys preferred stock, par value $0.01 per share, as Series G Convertible Redeemable Preferred Stock (Series G Preferred). Shares of Series G Preferred rank junior to the Companys Series B Convertible Redeemable Preferred Stock, Series E Convertible Redeemable Preferred Stock, Series F Convertible Redeemable Preferred Stock as well as the Companys existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Companys common stock, par value $0.01 per share (Common Stock). Each share of Series G Preferred has a liquidation preference of $1,000 per share (Series G Liquidation Preference), and is convertible, at the option of the holder, into that number of shares of the Companys Common Stock equal to the Series G Liquidation Preference, divided by $1.50.   On December 29, 2016, the Company accepted subscription forms from certain accredited investors (the Investors) to purchase a total of 1,625 shares of Series G Preferred for $1,000 per share (the Series G Financing), resulting in gross proceeds to the Company of $1,625,000 net of issuance costs of approximately $11,000. In addition, the Company also received executed exchange agreements from the Investors pursuant to which the Company exchanged an aggregate total of approximately 3.4 million shares of Common Stock held by the Investors for an aggregate total of approximately 4,400 shares of Series G Preferred.   Creation of Series F Convertible Redeemable Preferred Stock and Series F Financing   On September 2, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series F Convertible Preferred Stock with the Delaware Division of Corporations, designating 2,000 shares of its preferred stock as Series F Convertible Redeemable Preferred Stock (Series F Preferred). Shares of Series F Preferred rank junior to the Companys Series B Convertible Redeemable Preferred Stock, Series E Convertible Redeemable Preferred Stock and existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Companys Common Stock. Each share of Series F Preferred has a liquidation preference of $1,000 per share (Series F Liquidation Preference), and is convertible, at the option of the holder, into that number of shares of the Companys Common Stock equal to the Series F Liquidation Preference, divided by $1.50.   On September 7, 2016, the Company and Cap 1 LLC (the Investor), entered into a securities purchase agreement, wherein the Investor agreed to purchase 2,000 shares of Series F Preferred for $1,000 per share (the Series F Financing), resulting in gross proceeds to the Company of $2.0 million net of issuance costs of approximately $21,000.   Amendments to Lines of Credit   On December 27, 2016, in connection with the consummation of the Series G Financing, the Company and Neal Goldman, a member of the Companys Board of Directors (the Holder), agreed to enter into the fifth amendment (the Line of Credit Amendment) to the convertible promissory note previously issued by the Company to the Holder on March 27, 2013 (the Goldman Line of Credit), to provide the Company with the ability to borrow up to $5.5 million under the terms of the Goldman Line of Credit, bringing the total amount the Company may borrow under its existing lines of credit to $6.0 million. In addition, the Maturity Date, as defined in the Goldman Line of Credit, was amended to be December 31, 2017. The Line of Credit Amendment was executed on January 23, 2017.                 In addition, on January 23, 2017, the Company and Charles Crocker, also a member of the Board of Directors of the Company, amended the line of credit and promissory note, dated March 9, 2016 (the Crocker LOC), to extend the maturity date thereof to December 31, 2017. No other amendments were made to the Crocker LOC.   Key Product Introduction   On November 14, 2016, the Company introduced GoVerifyID® Enterprise Suite, a multi-modal, multi-factor biometric authentication solution for the enterprise market. An algorithm-agnostic solution, GoVerify ID Enterprise Suite is an end-to-end biometric platform that seamlessly integrates with an enterprises existing Microsoft infrastructure, offering businesses a turnkey biometric solution for quick deployment. The Company feels that this product has the potential to dramatically accelerate adoption of its biometric solution due to the worldwide prevalence of enterprise use of the Microsoft infrastructure.   Working across the entire enterprise ecosystem, GoVerifyID Enterprise Suite offers a consistent user experience and centralized administration with the highest level of security, flexibility, and usability. Specific benefits include:   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 24px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Mobile-workforce friendlyWith GoVerifyID Enterprise Suite user authentication logins are possible for a tablet or laptop even when disconnected from the corporate network. Additionally, GoVerifyID Enterprise offers a consistent user authentication experience across all login environments.</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 24px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Hybrid cloudGoVerifyID Enterprise Suite is linked from the cloud to an enterprises Microsoft infrastructure and is backward compatible with Windows 7, 8 and 10. Additionally, because the solution is SaaS-based it can easily scale to process hundreds of millions of transactions and store just as many biometrics.</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 24px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Seamless integrationGoVerifyID Enterprise Suite is a snap-in to the Microsoft Management console and can be centrally managed at the server. Additionally, the solution allows for seamless movement as it integrates with Active Directory using an organizations existing Microsoft security infrastructure.</td></tr> </table>   Liquidity, Going Concern and Management’s Plan   Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt, including our Lines of Credit (defined above). Our principal uses of cash have included cash used in operations, product development, payments relating to purchases of property and equipment and repayments of borrowings. We expect that our principal uses of cash in the future will be for product development including customization of identity management products for enterprise and consumer applications, further development of intellectual property, development of Software-as-a-Service (“SaaS”) capabilities for existing products as well as general working capital and capital expenditure requirements. Management expects that, as our revenues grow, our sales and marketing and research and development expenses will continue to grow, albeit at a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations.   At December 31, 2016, we had a working capital deficit of approximately $3.0 million, compared to a working capital surplus of approximately $1.4 million at December 31, 2015. Our principal sources of liquidity at December 31, 2016 consisted of available borrowings under our Lines of Credit of $3.35 million, and approximately $1.68 million of cash and cash equivalents, compared to approximately $3.35 million in cash and cash equivalents at December 31, 2015.     In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Companys ability to continue to raise capital and generate positive cash flows from operations. However, the Company operates in markets that are emerging and highly competitive. There is no assurance that the Company will be able to obtain additional capital, operate at a profit or generate positive cash flows in the future.   The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

Principles of Consolidation   The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Companys wholly-owned subsidiaries are XImage Corporation, a California Corporation, ImageWare Systems ID Group, Inc. a Delaware corporation (formerly Imaging Technology Corporation), I.W. Systems Canada Company, a Nova Scotia unlimited liability company, ImageWare Digital Photography Systems, Inc., LLC a Nevada limited liability company (formerly Castleworks LLC), Digital Imaging International GmbH, a company formed under German laws and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated.   Operating Cycle   Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle.   Use of Estimates   The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for doubtful accounts receivable, inventory carrying values, deferred tax asset valuation allowances, accounting for loss contingencies, recoverability of goodwill and acquired intangible assets and amortization periods, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, revenue and cost of revenues recognized under the percentage of completion method and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates.   Accounts Receivable   In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers ability to pay to determine the level of allowance required.  Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful.   Inventories   Finished goods inventories are stated at the lower of cost, determined using the average cost method, or market. See Note 6.   Property, Equipment and Leasehold Improvements   Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.   Fair Value of Financial Instruments   For certain of the Companys financial instruments, including accounts receivable, accounts payable, accrued expenses, deferred revenues and lines of credit payable to related parties, the carrying amounts approximate fair value due to their relatively short maturities.   Revenue Recognition   The Company recognizes revenue from the following major revenue sources:   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Long-term fixed-price contracts involving significant customization;</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Fixed-price contracts involving minimal customization;</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Software licensing;</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Sales of computer hardware and identification media; and</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Post-contract customer support ( PCS).</td></tr> </table>   The Companys revenue recognition policies are consistent with U.S. GAAP including the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 985-605, Software Revenue Recognition, ASC 605-35 Revenue Recognition, Construction-Type and Production-Type Contracts, Securities and Exchange Commission Staff Accounting Bulletin 104, and ASC 605-25 Revenue Recognition, Multiple Element Arrangements. Accordingly, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured.   The Company recognizes revenue and profit as work progresses on long-term, fixed-price contracts involving significant amount of hardware and software customization using the percentage of completion method based on costs incurred to date compared to total estimated costs at completion. The primary components of costs incurred are third party software and direct labor cost including fringe benefits. Revenues recognized in excess of amounts billed are classified as current assets under Costs and estimated earnings in excess of billings on uncompleted contracts. Amounts billed to customers in excess of revenues recognized are classified as current liabilities under Billings in excess of costs and estimated earnings on uncompleted contracts. Revenue from contracts for which the Company cannot reliably estimate total costs or there are not significant amounts of customization are recognized upon completion. For contracts that require significant amounts of customization that the Company accounts for under the completed contract method of revenue recognition, the Company defers revenue recognition until customer acceptance is received. For contracts containing either extended or dependent payment terms, revenue recognition is deferred until such time as payment has been received by the Company. The Company also generates non-recurring revenue from the licensing of its software. Software license revenue is recognized upon the execution of a license agreement, upon deliverance, when fees are fixed and determinable, when collectability is probable, when all other significant obligations have been fulfilled and the Company has obtained vendor specific objective evidence (VSOE) of the fair value of the undelivered element. VSOE of fair value for customer support services is determined by reference to the price the customer pays for such element when sold separately; that is, the renewal rate offered to customers. In those instances when objective and reliable evidence of fair value exists for the undelivered items but not for the delivered items, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of arrangement consideration allocated to the delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items. The Company also generates revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer. The Companys revenue from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant obligations remain and collectability of the related receivable is probable. Pricing of maintenance contracts is consistent period to period and calculated as a percentage of the software or hardware revenue.  Amounts collected in advance for maintenance services are included in current liabilities under "Deferred revenue". Sales tax collected from customers is excluded from revenue.   Goodwill   The Company accounts for its intangible assets under the provisions of ASC 350, Intangibles - Goodwill and Other. In accordance with ASC 350, intangible assets with a definite life are analyzed for impairment under ASC 360-10-05 Property, Plant and Equipment and intangible assets with an indefinite life are analyzed for impairment under ASC 360 annually, or more often if circumstances dictate. The Company performs its annual goodwill impairment test in the fourth quarter of each year, or if required, at the end of each fiscal quarter.  In accordance with ASC 350, goodwill, or the excess of cost over fair value of net assets acquired is tested for impairment using a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Companys reporting unit is at the entity level. The Company recognizes an impairment charge for any amount by which the carrying amount of a reporting units goodwill exceeds its fair value. The Company uses fair value methodologies to establish fair values.   The Company did not record any goodwill impairment charges for the years ended December 31, 2016, 2015 or 2014.   Intangible and Long Lived Assets   Intangible assets are carried at their cost less any accumulated amortization.  Any costs incurred to renew or extend the life of an intangible or long lived asset are reviewed for capitalization.  The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Companys management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Companys products under development will continue. Either of these could result in future impairment of long-lived assets.   Concentration of Credit Risk   Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high quality financial institutions and at times during the years ended December 31, 2016 and 2015 exceeded the FDIC insurance limits of $250,000. Sales are typically made on credit and the Company generally does not require collateral. The Company performs ongoing credit evaluations of its customers financial condition and maintains an allowance for doubtful accounts. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers ability to pay to determine the level of allowance required. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $1,000 and $3,000 at December 31, 2016 and 2015, respectively.   For the year ended December 31, 2016 two customers accounted for approximately 30% or $1,162,000 of total revenues and had trade receivables of $78,000 as of the end of the year.  For the year ended December 31, 2015 two customers accounted for approximately 37% or $1,753,000 of total revenues and had trade receivables of $78,000 as of the end of the year. For the year ended December 31, 2014, one customer accounted for approximately 17% or $725,000 of total revenues and $0 trade receivables as of the end of the year.   Stock-Based Compensation    At December 31, 2016, the Company had one stock-based compensation plan for employees and nonemployee directors, which authorize the granting of various equity-based incentives including stock options and restricted stock.   The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, Compensation Stock Compensation. The fair value of stock options granted is recognized to expense over the requisite service period. Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Stock-based compensation expense is reported in operating expenses based upon the departments to which substantially all of the associated employees report and credited to additional paid-in-capital. Stock-based compensation expense related to equity options was approximately $1,162,000, $744,000 and $618,000 for the years ended December 31, 2016, 2015 and 2014, respectively.   ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Companys Common Stock. Historical volatility factors utilized in the Companys Black-Scholes computations for options granted during the years ended December 31, 2016, 2015 and 2014 ranged from 65% to 116%. The Company has elected to estimate the expected life of an award based upon the SEC approved simplified method noted under the provisions of Staff Accounting Bulletin No. 110. The expected term used by the Company during the years ended December 31, 2016, 2015 and 2014 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Companys Black-Scholes calculations for the years ended December 31, 2016, 2015 and 2014 averaged 2.6%. Dividend yield is zero as the Company does not expect to declare any dividends on the Companys common shares in the foreseeable future.   In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has estimated an annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. The Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience.   Restricted stock units are recorded at the grant date fair value with corresponding compensation expense recorded ratably over the requisite service period.   Income Taxes   Current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.   Foreign Currency Translation   The financial position and results of operations of the Companys foreign subsidiaries are measured using the foreign subsidiarys local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. dollars at weighted-average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders equity, unless there is a sale or complete liquidation of the underlying foreign investments. The Company translates foreign currencies of its German, Canadian and Mexican subsidiaries. The cumulative translation adjustment, which is recorded in accumulated other comprehensive loss, decreased approximately $1,000 for the year ended December 31, 2016, increased approximately $67,000 for the year ended December 31, 2015 and decreased approximately $20,000 for the year ended December 31, 2014.    Comprehensive Loss   Comprehensive loss consists of net gains and losses affecting shareholders equity that, under generally accepted accounting principles, are excluded from net loss. For the Company, the only items are the cumulative translation adjustment and the additional minimum liability related to the Companys defined benefit pension plan, recognized pursuant to ASC 715-30, "Compensation - Retirement Benefits - Defined Benefit Plans Pension".   Advertising Costs   The Company expenses advertising costs as incurred. The Company incurred approximately $24,000 in advertising expenses during the year ended December 31, 2016, $12,000 in advertising expenses during the year ended December 31, 2015 and $9,000 during the year ended December 31, 2014.   Loss Per Share   Basic loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period, adjusted to include, if dilutive, potential dilutive shares consisting of convertible preferred stock, convertible notes payable, stock options and warrants, calculated using the treasury stock and if-converted methods.  For diluted loss per share calculation purposes, the net loss available to commons shareholders is adjusted to add back any preferred stock dividends and any interest on convertible debt reflected in the consolidated statement of operations for the respective periods.   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">(Amounts in thousands, except share and per share amounts)</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="10" style="font-weight: bold; text-align: center">Year Ended December 31,</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Numerator for basic and diluted loss per share:</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Net loss</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(9,527</td> <td style="width: 1%; font-weight: bold">)</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(8,534</td> <td style="width: 1%; font-weight: bold">)</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(7,940</td> <td style="width: 1%; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(1,347</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(1,065</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(51</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss available to common shareholders</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(10,874</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(9,599</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(7,991</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Denominator for basic loss per share weighted-average shares outstanding</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,426,783</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">93,786,079</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">91,795,971</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of dilutive securities</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Denominator for diluted loss per share weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,426,783</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,786,079</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">91,795,971</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic and diluted loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.10</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.01</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss available to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.12</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.10</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> </table>    The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as their effect would have been antidilutive:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>     Potential Dilutive Securities:</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Convertible lines of credit</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right">2,201,903</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right"></td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right">1,649,548</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series B</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series E</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,315,789</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,442,105</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series F</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,333,333</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series G</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4,014,000</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Stock options</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,506,843</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">5,376,969</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4,057,296</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Warrants</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">175,000</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">450,000</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">977,778</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total Potential Dilutive Securities</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">20,592,897</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">12,315,103</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,730,651</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   Recently Issued Accounting Standards   From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), or other standard setting bodies, which are adopted by us as of the specified effective date. Unless otherwise discussed, the Companys management believes the impact of recently issued standards not yet effective will not have a material impact on the Companys consolidated financial statements upon adoption.   FASB ASU No. 2014-09. In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB finalized a one-year deferral of the effective date of the new standard. For public entities, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Calendar year-end public companies are therefore required to apply the revenue guidance beginning in their 2018 interim and annual financial statements. The standard permits the use of either the retrospective or cumulative effect transition method. We currently anticipate adopting the standard using the cumulative effect transition method during the first fiscal quarter in 2018.   FASB ASU No. 2014-15. In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, which provides guidance on managements responsibility in evaluating whether there is substantial doubt about a companys ability to continue as a going concern and to provide related footnote disclosures. ASU No. 2014-15 became effective in the fourth quarter of 2016. The adoption of ASU No. 2014-15 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2015-03. In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. The standard became effective for the Company beginning January 1, 2016. The adoption of ASU No. 2015-03 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2015-11. In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in ASU No. 2015-11 require an entity of measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. For public business entities, the amendments in ASU No. 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2016-01. In January 2016, the FASB issued ASU 2016-01, Financial InstrumentsOverall - Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and apply to all entities that hold financial assets or owe financial liabilities. The amendments in this ASU also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. That impairment assessment is similar to the qualitative assessment for long-lived assets, goodwill, and indefinite-lived intangible assets. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with earlier application permitted for financial statements that have not been issued. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2018 and are currently evaluating the impact the adoption of this new accounting standard will have on our consolidated financial statements.   FASB ASU No. 2016-02. In February 2016, the FASB issued ASU No. 2016-02, Leases. This guidance will result in key changes to lease accounting and will aim to bring leases onto balance sheets to give investors, lenders, and other financial statement users a more comprehensive view of a company's long-term financial obligations as well as the assets it owns versus leases. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and anticipates commencement of adoption planning in the fourth fiscal quarter of 2018.   FASB ASU No. 2016-06. In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815) Contingent Put and Call Options in Debt Instruments (ASU 2016-06), which will reduce diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature of an exercise contingency is not subject to the clearly and closely criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The adoption of ASU No. 2016-06 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2016-08. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)(ASU 2016-08). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.   FASB ASU No. 2016-09. In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation Stock Compensation (Topic 718) (ASU 2016-09). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. The adoption ASU No. 2016-09 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2016-10. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). ASU 2016-10 provides further implementation guidance on identifying performance obligations and also improves the operability and understandability of the licensing implementation guidance. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.   FASB ASU No. 2016-13. In June 2016, the FASB issued Accounting Standard Update No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking expected loss model that will replace todays incurred loss model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. This guidance is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.    FASB ASU No. 2016-15. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.   FASB ASU No. 2017-04. In January 2017, the FASB issued ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments of this ASU eliminate step 2 from the goodwill impairment test. The annual, or interim test is performed by comparing the fair value of a reporting unit with its carrying amount. The amendments of this ASU also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and if it fails that qualitative test, to perform step 2 of the goodwill impairment test. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.

The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.   ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: top"> <td style="width: 3%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: justify">Level 1</td> <td style="width: 88%; font-weight: bold; text-align: justify">Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.</td></tr> <tr style="vertical-align: top"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: top"> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: justify">Level 2</td> <td style="font-weight: bold; text-align: justify">Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.</td></tr> <tr style="vertical-align: top"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: top"> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: justify">Level 3</td> <td style="font-weight: bold; text-align: justify">Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).</td></tr> </table>   The following table sets forth the Companys financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.     <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Fair Value at December 31, 2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold; text-align: center">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Total</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Level 1</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Level 2</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Level 3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Assets:</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 52%; font-weight: bold">   Pension assets</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,645</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,645</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">   Totals</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,645</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,645</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Fair Value at December 31, 2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold; text-align: center">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Total</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Level 1</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Level 2</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Level 3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Assets:</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 52%; font-weight: bold">   Pension assets</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,557</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,557</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">   Totals</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,557</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,557</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   The Companys pension assets are classified within Level 1 of the fair value hierarchy because they are valued using market prices. The pension assets are primarily comprised of the cash surrender value of insurance contracts. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The investment objectives for the plan are the preservation of capital, current income and long-term growth of capital.   The Company monitors the activity within each level and any changes with the underlying valuation techniques or inputs utilized to recognize if any transfers between levels are necessary.  That determination is made, in part, by working with outside valuation experts for Level 3 instruments and monitoring market related data and other valuation inputs for Level 1 and Level 2 instruments.

The Company has intangible assets in the form of trademarks, trade names and patents. The carrying amount of the Companys acquired trademarks and trade names was $0 as of December 31, 2016 and 2015, respectively, which include accumulated amortization of $347,000 as of December 31, 2016 and 2015. Amortization expense related to trademarks and tradenames was $0, $15,000 and $15,000 for the years ended December 31, 2016, 2015 and 2014, respectively. All intangible assets are amortized over their estimated useful lives with no estimated residual values. Any costs incurred by the Company to renew or extend the life of intangible assets will be evaluated under ASC No. 350, Intangibles Goodwill and Other, for proper treatment.   The carrying amounts of the Companys patent intangible assets were $105,000 and $117,000 as of December 31, 2016 and 2015, respectively, which includes accumulated amortization of $554,000 and $542,000 as of December 31, 2016 and 2015, respectively.  Amortization expense for patent intangible assets was $12,000 for the years ended December 31, 2016, 2015 and 2014. Patent intangible assets are being amortized on a straight-line basis over their remaining life of approximately 9.5 years. There was no impairment of the Company's intangible assets during the years ended December 31, 2016, 2015 and 2014.   The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment. The Company performs its annual impairment test in the fourth quarter of each year. A two-step impairment test is used to first identify potential goodwill impairment and then measure the amount of goodwill impairment loss, if any. The first step was conducted by determining and comparing the fair value, employing the market approach, of the Companys reporting unit to the carrying value of the reporting unit. The Company continues to have only one reporting unit, Identity Management. Based on the results of this impairment test, the Company determined that its goodwill was not impaired during the years ended December 31, 2016, 2015 and 2014.   The estimated acquired intangible amortization expense for the next five fiscal years is as follows:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Fiscal Year Ended December 31,</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> Estimated Amortization Expense ($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 88%; font-weight: bold">         2017</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">12</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">         2018</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">         2019</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">         2020</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">         2021</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">         Thereafter</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">45</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">         Totals</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">105</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

Related Party Convertible Notes   On November 14, 2008, the Company entered into a series of convertible promissory notes (the Related-Party Convertible Notes), aggregating $110,000 with certain officers and members of the Companys Board of Directors, including S. James Miller, the Companys Chief Executive Officer and Chairman. The Related-Party Convertible Notes bear interest at 7.0% per annum and were originally due February 14, 2009. In conjunction with the original issuance of the Related-Party Convertible Notes in 2008, the Company issued an aggregate of 149,996 warrants to the note holders to purchase shares of Common Stock of the Company. The warrants have an exercise price $0.50 per share and may be exercised at any time from November 14, 2008 until November 14, 2013. No warrants to purchase shares of Common Stock were outstanding and exercisable as of December 31, 2015, and no warrants were issued and outstanding as of December 31, 2015.   The Company did not repay the Related-Party Convertible Notes on the due date. In August 2009, the Company received from the Related-Party Convertible Note holders a waiver of default and extension to January 31, 2010 of the maturity date of the Related-Party Convertible Notes. As consideration for the waiver and note extension, the Company issued to the Related-Party Convertible Note holders an aggregate of 150,000 warrants to purchase shares of the Companys Common Stock. The warrants have an exercise price of $0.50 per share and expire on August 25, 2014, of which no warrants to purchase shares of Common Stock were outstanding and exercisable as of December 31, 2016.   On January 21, 2013, the holders of the Related-Party Convertible Notes agreed to extend the due date on their respective convertible notes to be due and payable not later than June 30, 2015, however, the Related-Party Convertible Notes will be callable at any time, at the option of the note holder, prior to June 30, 2015. During the year ended December 31, 2014, holders of Related-Party Convertible Notes in the principal amount of $85,034 elected to convert their respective Related-Party Convertible Notes into 154,607 shares of Common Stock.   Lines of Credit   In March 2013, the Company and Holder entered into the Goldman Line of Credit with available borrowings of up to $2.5 million. In March 2014, the Goldman Line of Credits borrowing was increased to an aggregate total of $3.5 million (the Amendment). Pursuant to the terms and conditions of the Amendment, the Holder had the right to convert up to $2.5 million of the outstanding balance of the Goldman Line of Credit into shares of the Company's Common Stock for $0.95 per share. Any remaining outstanding balance was convertible into shares of the Company's Common Stock for $2.25 per share.   As consideration for the initial Goldman Line of Credit, the Company issued a warrant to the Holder, exercisable for 1,052,632 shares of the Companys Common Stock (the "Line of Credit Warrant"). The Goldman Line of Credit Warrant had a term of two years from the date of issuance and an exercise price of $0.95 per share.  As consideration for entering into the Amendment, the Company issued to the Holder a second warrant, exercisable for 177,778 shares of the Companys Common Stock (the Amendment Warrant). The Amendment Warrant expired on March 27, 2015 and had an exercise price of $2.25 per share.   The Company estimated the fair value of the Line of Credit Warrant using the Black-Scholes option pricing model using the following assumptions: term of two years, a risk-free interest rate of 2.58%, a dividend yield of 0%, and volatility of 79%. The Company recorded the fair value of the Line of Credit Warrant as a deferred financing fee of approximately $580,000 to be amortized over the life of the Goldman Line of Credit. The Company estimated the fair value of the Amendment Warrant using the Black-Scholes option pricing model using the following assumptions: term on one year, a risk-free interest rate of 2.58%, a dividend yield of 0% and volatility of 74%. The Company recorded the fair value of the Amendment Warrant as an additional deferred financing fee of approximately $127,000 to be amortized over the life of the Goldman Line of Credit.   During the years ended December 31, 2016, 2015 and 2014, the Company recorded an aggregate of approximately $48,000, $53,000 and $369,000, respectively in deferred financing fee amortization expense which is recorded as a component of interest expense in the Companys consolidated statements of operations.   In April 2014, the Company and the Holder entered into a further amendment to the Goldman Line of Credit to decrease the available borrowings to $3.0 million (the Second Amendment).  Contemporaneous with the execution of the Second Amendment, the Company entered into a new unsecured line of credit with the Second Holder with available borrowings of up to $500,000 (the Crocker LOC), which amount was convertible into shares of the Companys Common Stock for $2.25 per share. As a result of these amendments, total available borrowings under the Lines of Credit available to the Company remained unchanged at a total of $3.5 million. In connection with the Second Amendment, the Holder assigned and transferred to the Second Holder one-half of the Amendment Warrant.   In December 2014, the Company and the Holder entered into a further amendment to the Goldman Line of Credit to increase the available borrowing to $5.0 million and extend the maturity date of the Goldman Line of Credit to March 27, 2017 (the Third Amendment). Also, as a result of the Third Amendment, the Holder had the right to convert up to $2.5 million outstanding principal, plus any accrued but unpaid interest (Outstanding Balance) into shares of the Companys Common Stock for $0.95 per share, the next $500,000 Outstanding Balance into shares of Common Stock for $2.25 per share and any remaining outstanding balance thereafter into shares of Common Stock for $2.30 per share. The Third Amendment also modified the definition of a Qualified Financing to mean a debt or equity financing resulting in gross proceeds to the Company of at least $5.0 million.   In February 2015, as a result of the Series E Financing, the Company issued 1,978 shares of Series E Preferred to the Holder to satisfy $1,950,000 in principal borrowings under the Goldman Line of Credit plus approximately $28,000 in accrued interest. As a result of the Series E Financing, the Companys borrowing capacity under the Goldman Line of Credit was reduced to $3,050,000 with the maturity date unchanged and the $500K Line of Credit was terminated in accordance with its terms.   In March 2016, the Company and the Holder entered into a fourth amendment to the Goldman Line of Credit (the Fourth Amendment) solely to (i) increase available borrowings to $5.0 million; (ii) extend the maturity date to June 30, 2017, and (iii) provide for the conversion of the outstanding balance due under the terms of the Goldman Line of Credit into that number of fully paid and non-assessable shares of the Companys Common Stock as is equal to the quotient obtained by dividing the outstanding balance by $1.25.   Contemporaneous with the execution of the Fourth Amendment, the Company entered into a new $500K Line of Credit with available borrowings of up to $500,000 with the Second Holder, which replaced the original $500K Line of Credit that terminated as a result of the consummation of the Series E Financing.  Similar to the Fourth Amendment, the new $500K Line of Credit with the Second Holder matures on June 30, 2017, and provides for the conversion of the outstanding balance due under the terms of the $500K Line of Credit into that number of fully paid and non-assessable shares of the Companys Common Stock as is equal to the quotient obtained by dividing the outstanding balance by $1.25.   On December 27, 2016, in connection with the consummation of the Series G Financing, the Company and Holder agreed to enter into the Fifth Amendment (the Line of Credit Amendment) to the Goldman Line of Credit to provide the Company with the ability to borrow up to $5.5 million under the terms of the Goldman Line of Credit. In addition, the Maturity Date, as defined in the Goldman Line of Credit was amended to be December 31, 2017. The Line of Credit Amendment was executed on January 23, 2017.   In addition, on January 23, 2017, the Company and the Second Holder amended the $500K Line of Credit to extend the maturity date thereof to December 31, 2017. No other amendments were made to the $500K Line of Credit.   The Company evaluated the Lines of Credit and determined that the instruments contain a contingent beneficial conversion feature, i.e. an embedded conversion right that enables the holder to obtain the underlying Common Stock at a price below market value. The beneficial conversion feature is contingent as the terms of the conversion do not permit the Company to compute the number of shares that the holder would receive if the contingent event occurs (i.e. future borrowings under the Line of Credit). The Company has considered the accounting for this contingent beneficial conversion feature using the guidance in ASC 470, Debt. The guidance in ASC 470 states that a contingent beneficial conversion feature in an instrument shall not be recognized in earnings until the contingency is resolved. The beneficial conversion features of future borrowings under the Line of Credit will be measured using the intrinsic value calculated at the date the contingency is resolved using the conversion price and trading value of the Companys Common Stock at the date the Lines of Credit were issued (commitment date). Pursuant to borrowings made during the 2015 year, the Company recognized approximately $146,000 in beneficial conversion feature as debt discount. As a result of the retirement of all amounts outstanding under the Lines of Credit in 2015, the Company recognized all remaining unamortized debt discount of approximately $385,000 as a component of interest expense during the three months ended March 31, 2015. As there was $2,650,000 in borrowings under the Lines of Credit during the year ended December 31, 2016, the Company recorded approximately $146,000 in debt discount attributable to the beneficial conversion feature during the year ended December 31, 2016. During the year ended December 31, 2016, the Company accreted approximately $97,000, respectively, of debt discount as a component of interest expense. At December 31, 2016, unamortized note discount was approximately $122,000.   The following table sets forth the Companys activity under its Lines of Credit for the periods indicated:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="width: 88%; font-weight: bold">Balance outstanding under Lines of Credit as of December 31, 2014</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">1,550</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Borrowing under Lines of Credit</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">750</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Repayments</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(350</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Exchange of Indebtedness for Series E Preferred Stock</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(1,950</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Balance outstanding under Lines of Credit as of December 31, 2015</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Borrowings under Lines of Credit</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2,650</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Repayments</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Balance outstanding under Lines of Credit as of December 31, 2016</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">2,650</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

Inventories of $23,000 as of December 31, 2016 were comprised of work in process of $19,000 representing direct labor costs on in-process projects and finished goods of $4,000 net of reserves for obsolete and slow-moving items of $3,000.   Inventories of $46,000 as of December 31, 2015 were comprised of work in process of $42,000, representing direct labor costs on in-process projects, approximately $21,000 of equipment related to in-process projects and finished goods of $4,000 net of reserves for obsolete and slow-moving items of $3,000. The balance of direct labor costs on in-process projects of $42,000 at December 31, 2015, reflects a write down of approximately $261,000 to net realizable value.   Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value and required reserve levels.

Property and equipment at December 31, 2016 and 2015, consists of:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%; font-weight: bold">Equipment</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">935</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">887</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Leasehold improvements</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">11</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">11</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Furniture</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">101</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">101</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,047</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">999</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Less accumulated depreciation</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(954</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(837</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">162</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   Total depreciation expense for the years ended December 31, 2016, 2015 and 2014 was approximately $117,000, $137,000 and $152,000, respectively.

Principal components of accrued expenses consist of:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> December 31, 2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> December 31, 2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%; font-weight: bold">Compensated absences</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">313</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">260</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Wages, payroll taxes and sales commissions</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">28</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">11</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Customer deposits</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">198</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">69</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Liquidated damages</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">200</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Royalties</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">147</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">147</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Pension and employee benefit plans</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">7</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Income and sales taxes</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">161</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">131</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Dividends</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">27</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">261</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest payable to related parties</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">102</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">64</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">64</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,047</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,149</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

Outstanding lines of credit consist of the following:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td> ($ in thousands)  </td> <td style="font-weight: bold"> </td> <td colspan="2"> December 31, 2016</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2"> December 31, 2015</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Lines of Credit</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%; font-weight: bold">8% convertible lines of credit. Face value of advances under lines of credit $2,650 at December 31, 2016 and $0 at December 31, 2015, respectively. Discount on advances under lines of credit is $122 at December 31, 2016 and $0 at December 31, 2015, respectively. Maturity date is December 31, 2017.</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">2,528</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right"></td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total lines of credit to related parties</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2,528</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Less current portion</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,528</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Long-term lines of credit to related parties</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> </table>   Lines of Credit   For a more detailed discussion of the Companys Lines of Credit, see Note 5 Related Parties.

10.  INCOME TAXES   The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, (ASC 740). Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established when necessary based on the weight of available evidence, if it is considered more likely than not that all or some portion of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.  The Company has established a valuation allowance against its deferred tax asset due to the uncertainty surrounding the realization of such asset.   ASC 740 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.  The amount accrued for uncertain tax positions was zero at December 31, 2016, 2015 and 2015, respectively.   The Company’s uncertain position relative to unrecognized tax benefits and any potential increase in these liabilities relates primarily to the allocations of revenue and costs among the Company’s global operations and the impact of tax rulings made during the period affecting its tax positions. The Company’s existing tax position could result in liabilities for unrecognized tax benefits. The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties accrued as of December 31, 2016 and 2015 was approximately $12,000 and $11,000, respectively.   Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the Company’s provision for income taxes. No assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provisions and accruals. The Company adjusts these items in light of changing facts and circumstances. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.   The significant components of the income tax provision are as follows:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">($ in thousands)</td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="10" style="border-bottom: black 1pt solid; text-align: center">Year Ended December 31,</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Current</td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2016</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2015</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2014</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 67%">Federal</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">—</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">—</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">—</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>State</td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Foreign</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">21</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">22</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">25</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Deferred</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Federal</td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>State</td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Foreign</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">21</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">22</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">25</td> <td style="padding-bottom: 3pt"> </td></tr> </table>   The principal components of the Company’s deferred tax assets at December 31, 2016, 2015 and 2014 are as follows:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">($ in thousands)</td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2016</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2015</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2014</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 67%">Net operating loss carryforwards</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">17,829</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">15,948</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">14,200</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>Intangible and fixed assets</td> <td> </td> <td> </td> <td style="text-align: right">102</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">220</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">427</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Stock based compensation</td> <td> </td> <td> </td> <td style="text-align: right">2,324</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">1,861</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">1,565</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Reserves and accrued expenses</td> <td> </td> <td> </td> <td style="text-align: right">8</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">8</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Other</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(85</td> <td style="padding-bottom: 1.5pt">)</td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td style="text-align: right">20,263</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">18,037</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">  16,113</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Less valuation allowance</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(20,263</td> <td style="padding-bottom: 1.5pt">)</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(18,037</td> <td style="padding-bottom: 1.5pt">)</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(16,113</td> <td style="padding-bottom: 1.5pt">)</td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt; text-indent: 0.5in">Net deferred tax assets</td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">—</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">—</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">—</td> <td style="padding-bottom: 3pt"> </td></tr> </table>   A reconciliation of the provision for income taxes to the amount computed by applying the statutory income tax rates to loss before income taxes is as follows:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt"> </td> <td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2016</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2015</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2014</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td colspan="3"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 67%">Amounts computed at statutory rates</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">(3,239</td> <td style="width: 1%">)</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">(2,902</td> <td style="width: 1%">)</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">(2,699</td> <td style="width: 1%">)</td></tr> <tr style="vertical-align: bottom"> <td>State income tax, net of federal benefit</td> <td> </td> <td> </td> <td style="text-align: right">(462</td> <td>)</td> <td> </td> <td> </td> <td style="text-align: right">(262</td> <td>)</td> <td> </td> <td> </td> <td style="text-align: right">(212</td> <td>)</td></tr> <tr style="vertical-align: bottom"> <td>Expiration of net operating loss carryforwards</td> <td> </td> <td> </td> <td style="text-align: right">1,082</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">695</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">708</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Non-deductible interest </td> <td> </td> <td> </td> <td style="text-align: right">49</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">149</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">145</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Foreign taxes</td> <td> </td> <td> </td> <td style="text-align: right">362</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">413</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">386</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Other</td> <td> </td> <td> </td> <td style="text-align: right">3</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">5</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">4</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Net change in valuation allowance on deferred tax assets</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">2,226</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,924</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,693</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">21</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">22</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">25</td> <td style="padding-bottom: 3pt"> </td></tr> </table>   The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.   At December 31, 2016, 2015 and 2014, the Company had federal and state net operating loss carryforwards, a portion of which may be available to offset future taxable income for tax purposes. The federal net operating loss carryforwards expire at various dates from 2021 through 2036. The state net operating loss carryforwards expire at various dates from 2029 through 2036.   The Internal Revenue Code (the "Code") limits the availability of certain tax credits and net operating losses that arose prior to certain cumulative changes in a corporation’s ownership resulting in a change of control of the Company. The Company’s use of its net operating loss carryforwards and tax credit carryforwards will be significantly limited because the Company believes it underwent “ownership changes”, as defined under Section 382 of the Internal Revenue Code, in 1991, 1995, 2000, 2003, 2004, 2011 and 2012, though the Company has not performed a study to determine the limitation. The Company has reduced its deferred tax assets to zero relating to its federal and state research credits because of such limitations. The Company continues to disclose the tax effect of the net operating loss carryforwards at their original amount in the table above as the actual limitation has not yet been quantified. The Company has also established a full valuation allowance for substantially all deferred tax assets due to uncertainties surrounding its ability to generate future taxable income to realize these assets. Since substantially all deferred tax assets are fully reserved, future changes in tax benefits will not impact the effective tax rate. Management periodically evaluates the recoverability of the deferred tax assets. If it is determined at some time in the future that it is more likely than not that deferred tax assets will be realized, the valuation allowance would be reduced accordingly at that time.   Tax returns for the years 2012 through 2016 are subject to examination by taxing authorities.

Employment Agreements   The Company has employment agreements with its Chief Executive Officer, its Senior Vice President of Administration and Chief Financial Officer, and its Chief Technical Officer. The Company may terminate the agreements with or without cause. Subject to the conditions and other limitations set forth in each respective employment agreement, each executive will be entitled to the following severance benefits if the Company terminates the executives employment without cause or in the event of an involuntary termination  (as defined in the employment agreements) by the Company or by the executive:   Under the terms of the agreement, the Chief Executive Officer will be entitled to the following severance benefits if we terminate his employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to twenty-four months base salary; (ii) continuation of fringe benefits and medical insurance for a period of three years; and (iii) immediate vesting of 50% of outstanding stock options and restricted stock awards. In the event that the Chief Executive Officers employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), the Chief Executive Officer is entitled to the severance benefits described above, except that 100% of the Chief Executive Officers outstanding stock options and restricted stock awards will immediately vest.   Under the terms of the employment agreements with our Senior Vice President of Administration and Chief Financial Officer, this executive will be entitled to the following severance benefits if we terminate their employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to six month’s of base salary; (ii) continuation of their fringe benefits and medical insurance for a period of six months; (iii) immediate vesting of 50% of their outstanding stock options and restricted stock awards. In the event that their employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), they are entitled to the severance benefits described above, except that 100% of their outstanding stock options and restricted stock awards will immediately vest.   Under the terms of the employment agreement with our Chief Technical Officer, this executive will be entitled to the following severance benefits if we terminate his employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to six months of base salary; (ii) continuation of their fringe benefits and medical insurance for a period of six months. In the event that his employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), he is entitled to the severance benefits described above, except that 100% of his outstanding stock options and restricted stock awards will immediately vest.   On December 28, 2016, the Company entered into amendments to the employment agreements for the Companys Chief Executive Officer, Chief Financial Officer, and Chief Technical Officer. Effective October 20, 2016, the term of each executive officer's employment agreement was extended until December 31, 2017.   Litigation   There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Companys or our subsidiaries officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.   Leases   The Companys corporate headquarters are located in San Diego, California where we occupy 9,927 square feet of office space. This facility is leased through October 2017 at a cost of approximately $18,000 per month. In addition to our corporate headquarters, we also occupied the following spaces at December 31, 2016:   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 4%; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif">●</td> <td style="width: 96%; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">1,508 square feet in Ottawa, Province of Ontario, Canada, at a cost of approximately $3,000 per month until the expiration of the lease on March 31, 2021. This lease was renewed in April 2016 for a five-year period ending on March 31, 2021. Renewal terms were substantially unchanged from the existing lease;</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">8,045 square feet in Portland, Oregon, at a cost of approximately $16,000 per month until the expiration of the lease on October 31, 2018; and</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">304 square feet of office space in Mexico City, Mexico, at a cost of approximately $3,000 per month until November 30, 2017.</td></tr> </table>     At December 31, 2016, future minimum lease payments are as follows:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">($ in thousands)</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 88%; font-weight: bold">2017</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">450</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2018</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">201</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2019</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">34</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2020</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">34</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2021</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">9</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">728</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   Rental expense incurred under operating leases for the years ended December 31, 2016, 2015 and 2014 was approximately $492,000, $477,000 and $430,000, respectively.

The Companys 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 Convertible Redeemable Preferred Stock (Series B Preferred) outstanding as of December 31, 2016 and 2015. At December 31, 2016 and 2015, the Company had cumulative undeclared dividends of approximately $8,000 ($0.03 per share). There were no conversions of Series B Preferred into Common Stock during the years ended December 31, 2016, 2015 and 2014. The Company paid dividends of approximately $51,000 to the holders of our Series B Preferred in 2016,2015 and 2014.   Series E Convertible Redeemable Preferred Stock   On January 29, 2015, the Company filed the Certificate of Designations of the Series E Preferred Stock with the Delaware Secretary of State, designating 12,000 shares of the Companys preferred stock, par value $0.01 per share, as Series E Preferred. Shares of Series E Preferred accrue dividends at a rate of 8% per annum if the Company chooses to pay accrued dividends in cash, and 10% per annum if the Company chooses to pay accrued dividends in shares of Common Stock. Each share of Series E Preferred has a liquidation preference of $1,000 per share and is convertible, at the option of the holder, into that number of shares of the Companys Common Stock equal to the Liquidation Preference, divided by $1.90. The Series E Preferred shall be subordinate to and rank junior to the Company's Series B Preferred and all indebtedness of the Company. Each holder of the Series E Preferred is entitled to vote on all matters, together with the holders of Common Stock, on an as converted basis.   Any time after the six-month period following the issuance date, the Company may redeem all or a portion of the Series E Preferred outstanding upon thirty (30) calendar day’s prior written notice (the Company's Redemption Notice) in cash at a price per share of Series E Preferred equal to 110% of the liquidation preference amount plus all accrued and unpaid dividends.  Also, simultaneous with the occurrence of a change of control transaction, the Company, at its option, shall have the right to redeem all or a portion of the outstanding Series E Preferred in cash at a price per share of Series E Preferred equal to 110% of the liquidation preference amount plus all accrued and unpaid dividends.   In February 2015, the Company consummated a registered direct offering conducted without an underwriter or placement agent. In connection therewith, the Company issued 12,000 shares of Series E Preferred to certain investors at a price of $1,000 per share, with each share convertible into 526.32 shares of the Companys Common Stock at $1.90 per share.   On December 29, 2016, the Company filed Amendment No. 1 to the Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock (the “Series E Amendment”) with the Delaware Division of Corporations. The Series E Amendment made the following changes to the Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock: (i) the Company may only make dividend payments in cash received from positive cash flow from operations; (ii) beginning on July 1, 2017, in the event the Company pays accrued dividend payments in shares of Common Stock for more than four consecutive quarterly periods, holders of shares of Series E Preferred will have the right to immediately appoint two designees to the Company’s Board of Directors (the “ Director Appointment Provision ”); (iii) dividend payments incurred on December 31, 2016 and March 31, 2017 may be paid in shares of Common Stock, without triggering the Director Appointment Provision; and (iv) the term Permitted Indebtedness (as defined in the Series E Certificate of Designations) was revised to cover permitted borrowings of up to $6.0 million.   The Company had 12,000 shares of Series E Preferred outstanding as of December 31, 2016 and 2015, respectively.  At December 31, 2016 and 2015, the Company had cumulative undeclared dividends of approximately $0 and $240,000, respectively.  There were no conversions of Series E Preferred into Common Stock during the twelve months ended December 31, 2016. For the twelve-month period ended December 31, 2016, the Company issued the holders of Series E Preferred 950,362 shares of Common Stock as payment of dividends due, on a quarterly basis, for the twelve months ended December 31, 2016. For the twelve months ended December 31, 2015, the Company paid the holders of our Series E Preferred cash dividends of $240,000 and issued the holders of our Series E Preferred 478,664 shares of common stock as payment of quarterly dividends for the period of January 1, 2015 through September 30, 2016.   Series F Convertible Redeemable Preferred Stock   In September 2016, we filed the Certificate of Designations, Preferences, and Rights of the Series F Convertible Preferred Stock (the Certificate of Designations) with the Delaware Division of Corporations, designating 2,000 shares of our preferred stock as Series F Convertible Redeemable Preferred Stock (Series F Preferred). Shares of Series F Preferred rank junior to shares of Series B Preferred and Series E Preferred, as well as our existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of Common Stock.   Each share of Series F Preferred has a liquidation preference of $1,000 per share (Liquidation Preference), and is convertible, at the option of the holder, into that number of shares of the Companys Common Stock equal to the Series F Liquidation Preference, divided by $1.50 (the Series F Conversion Shares).   Any time after the six-month period following the issuance date, in the event the arithmetic average of the closing sales price of the Companys Common Stock is or was at least $2.50 for twenty (20) consecutive trading days, the Company may redeem all or a portion of the Series F Preferred outstanding upon thirty (30) calendar days prior written notice in cash at a price per share of Series F Preferred equal to 110% of the Series F Liquidation Preference, plus all accrued and unpaid dividends.  Also, simultaneous with the occurrence of a Change of Control transaction (as defined in the Certificate of Designations), the Company, at its option, shall have the right to redeem all or a portion of the outstanding Series F Preferred in cash at a price per share of Series F Preferred equal to 110% of the Liquidation Preference Amount plus all accrued and unpaid dividends.   In September 2016, the Company offered and sold 2,000 shares of Series F Preferred for $1,000 per share (the Series F Financing), resulting in gross proceeds to the Company of $2,000,000 net of issuance costs of approximately $21,000.   The Company had 2,000 shares of Series F Preferred outstanding as of December 31, 2016 and no shares outstanding at December 31, 2015.  At December 31, 2016, the Company had cumulative undeclared dividends of $0.  There were no conversions of Series F Preferred into Common Stock during the year ended December 31, 2016. The Company issued the holders of Series F Preferred 48,513 shares of Common Stock as payment of dividends due, on a quarterly basis, for the twelve months ended December 31, 2016.   Series G Convertible Redeemable Preferred Stock   In December, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series G Convertible Preferred Stock with the Delaware Division of Corporations, designating 6,120 shares of the Companys preferred stock, par value $0.01 per share, as Series G Convertible Preferred Stock (Series G Preferred). Shares of Series G Preferred rank junior to the Companys Series B Preferred, Series E Preferred, Series F Preferred as well as the Companys existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Companys common stock, par value $0.01 per share. Each share of Series G Preferred has a liquidation preference of $1,000 per share (Series G Liquidation Preference), and is convertible, at the option of the holder, into that number of shares of the Companys Common Stock equal to the Series G Liquidation Preference, divided by $1.50.   On December 29, 2016, the Company accepted subscription forms from certain accredited investors to purchase a total of 1,625 shares of Series G Preferred for $1,000 per share (the Series G Financing), resulting in gross proceeds to the Company of $1,625,000, net of issuance cost of approximately $11,000. In addition, the Company also received executed exchange agreements from the Investors pursuant to which the Company exchanged an aggregate total of 3,383,830 shares of common stock held by the Investors for an aggregate total of 4,396 shares of Series G Preferred.   The Company had 6,021 shares of Series G Preferred outstanding as of December 31, 2016 and no shares outstanding at December 31, 2015.  At December 31, 2016, the Company had cumulative undeclared dividends of $0.  There were no conversions of Series G Preferred into Common Stock during the year ended December 31, 2016. The Company issued the holders of Series G Preferred 3,770 shares of Common Stock as payment of dividends due, on a quarterly basis, for the twelve months ended December 31, 2016.   Common Stock   The following table summarizes outstanding Common Stock activity for the following periods:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Common Stock</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 88%; font-weight: bold">Shares outstanding at December 31, 2013</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right">87,548,613</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to warrants exercised for cash</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4,742,632</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to cashless warrants exercised</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">868,565</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Conversion of related-party notes payable into Common Stock</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">154,607</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued as compensation in lieu of cash</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,116</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to option exercises</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">98,617</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Shares outstanding at December 31, 2014</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">93,507,150</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to payment of stock dividend on Series E Preferred</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">478,664</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to cashless warrants exercised</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">45,376</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to option exercises</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">39,705</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Shares outstanding at December 31, 2015</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,070,895</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to payment of stock dividend on Series E Preferred</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">950,362</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to payment of stock dividend on Series F Preferred</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">48,513</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to payment of stock dividend on Series G Preferred</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">3,770</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to cashless warrants exercised</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">144,459</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to option exercises</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12,626</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Exchange of common shares for Series G Preferred</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(3,383,830</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Shares outstanding at December 31, 2016</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">91,846,795</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   Warrants   As of December 31, 2016, warrants to purchase 175,000 shares of Common Stock at prices ranging from $0.80 to $1.10 were outstanding. All warrants are exercisable as of December 31, 2016 and expire as of September 1, 2017, with the exception of an aggregate of 150,000 warrants, which become exercisable only upon the attainment of specified events.   The following table summarizes warrant activity for the following periods: <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt">     Warrants</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> Weighted-  Average  Exercise Price</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%; font-weight: bold">Balance at December 31, 2013</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="width: 9%; padding-bottom: 1.85pt; font-weight: bold; text-align: right">6,598,416</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">0.63</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">    Granted</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">302,778</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">2.02</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">    Expired / Canceled</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(55,000</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1.10</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">    Exercised</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(5,868,416</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">0.58</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Balance at December 31, 2014</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">977,778</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1.22</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">    Granted</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">0.00</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">    Expired / Canceled</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(419,444</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1.86</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">    Exercised</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(108,334</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">1.01</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Balance at December 31, 2015</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">450,000</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">0.67</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">    Exercised</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(275,000</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Balance at December 31, 2016</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">175,000</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   During the year ended December 31, 2015, the Company modified 200,000 warrants previously issued to a consultant by eliminating certain performance condition requirements resulting in such warrants vesting pursuant to the passage of time. The Company determined the modification date fair value of the vested warrants using the Black-Scholes option valuation model and recorded approximately $80,000 in expense for the year ended December 31, 2015. The Company used the following assumptions in the application of the Black-Scholes option valuation modes: an exercise price of $1.72, a term of 0.77 years, a risk-free interest rate of 2.58%, a dividend yield of 0% and volatility of 64%. Such expense is recorded in the Companys consolidated statement of operations as a component of sales and marketing expense. There were no warrant modifications during the year ended December 31, 2016.   During the year ended December 31, 2016, there were 275,000 warrants exercised pursuant to cashless transactions resulting in the issuance of 144,459 shares of Common Stock. The intrinsic value of warrants outstanding as of December 31, 2016 was approximately $85,000.

Stock Options   As of December 31, 2016, the Company had one active stock-based compensation plan: the 1999 Stock Option Plan (the 1999 Plan).   1999 Plan   The 1999 Plan was adopted by the Companys Board of Directors on December 17, 1999. Under the terms of the 1999 Plan, the Company could, originally, issue up to 350,000 non-qualified or incentive stock options to purchase Common Stock of the Company. During the year ended December 31, 2014, the Company subsequently amended and restated the 1999 Plan whereby it increased the share reserve for issuance to approximately 7.0 million shares of the Companys Common Stock.  The 1999 Plan prohibits the grant of stock option or stock appreciation right awards with an exercise price less than fair market value of Common Stock on the date of grant. The 1999 Plan also generally prohibits the re-pricing of stock options or stock appreciation rights, although awards may be bought-out for a payment in cash or the Companys stock. The 1999 Plan permits the grant of stock based awards other than stock options, including the grant of full value awards such as restricted stock, stock units and performance shares. The 1999 Plan permits the qualification of awards under the plan (payable in either stock or cash) as performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code. The number of options issued and outstanding and the number of options remaining available for future issuance are shown in the table below. On July 1, 2014, the Company began soliciting written consents from its shareholders to approve an amendment to the Companys 1999 Stock Option Plan to increase the number of shares authorized for issuance thereunder from approximately 4.0 million to approximately 7.0 million (the Amendment).  As of July 21, 2014, the Company had received written consents approving the Amendment from over 50% of the Companys stockholders. As such, the Amendment was approved. The number of authorized shares available under the plan for issuance at December 31, 2016 was 6,562,781. The number of available shares under the plan for issuance at December 31, 2016 was 55,938.   A summary of the activity under the Companys stock option plans is as follows: <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: center">Options</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> Weighted- Average Exercise Price</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> Weighted- Average Remaining Contractual Term (Years)</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 58%">Balance at December 31, 2013</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">3,783,411</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">0.94</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">7.4</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>Granted</td> <td> </td> <td> </td> <td style="text-align: right">435,000</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">2.13</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"></td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Expired/Cancelled</td> <td> </td> <td> </td> <td style="text-align: right">(62,498</td> <td>)</td> <td> </td> <td>$</td> <td style="text-align: right">1.96</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"></td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(98,617</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">0.68</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right"></td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2014</td> <td> </td> <td> </td> <td style="text-align: right">4,057,296</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">1.06</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6.8</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Granted</td> <td> </td> <td> </td> <td style="text-align: right">2,110,000</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">1.63</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"></td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Expired/Cancelled</td> <td> </td> <td> </td> <td style="text-align: right">(750,622</td> <td>)</td> <td> </td> <td>$</td> <td style="text-align: right">1.86</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"></td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(39,705</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">0.87</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right"></td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2015</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">5,376,969</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">1.17</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">6.9</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td>Granted</td> <td> </td> <td> </td> <td style="text-align: right">1,264,000</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">1.34 </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">- </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Expired/Cancelled</td> <td> </td> <td> </td> <td style="text-align: right">(121,500</td> <td>)</td> <td> </td> <td> </td> <td style="text-align: right">1.29 </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">- </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(12,626</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">0.21 </td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">- </td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2016</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt; text-align: right">6,506,843</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt">$</td> <td style="padding-bottom: 1.85pt; text-align: right">1.21 </td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td> </td> <td style="text-align: right">6.6 </td> <td style="padding-bottom: 1.85pt"> </td></tr> </table>   At December 31, 2016, a total of 6,506,843 options were outstanding of which 4,366,374 were exercisable at a weighted average price of $1.08 per share with a remaining weighted average contractual term of approximately 6.8 years.  The Company expects that, in addition to the 4,366,374 options that were exercisable as of December 31, 2016, another 2,140,469 will ultimately vest resulting in a combined total of 6,506,843.  Those 6,506,843 shares have a weighted average exercise price of $1.08 and an aggregate intrinsic value of approximately $1,744,000 as of December 31, 2016. Stock-based compensation expense related to equity options was approximately $1,162,000, $744,000 and $618,000 for the years ended December 31, 2016, 2015 and 2014, respectively.   The weighted-average grant-date fair value per share of options granted to employees during the years ended December 31, 2016, 2015 and 2014 was $0.82, $1.18 and $1.37, respectively. At December 31, 2016, the total remaining unrecognized compensation cost related to unvested stock options amounted to approximately $1,719,849, which will be amortized over the weighted-average remaining requisite service period of 2.1 years.   During the year ended December 31, 2016, there were 12,626 options exercised for cash resulting in the issuance of 12,626 shares of the Companys Common Stock and proceeds of approximately $3,000.  During the year ended December 31, 2015, there were 39,705 options exercised for cash resulting in the issuance of 39,705 shares of the Companys Common Stock and proceeds of approximately $34,000.   The intrinsic value of options exercised during the years ended December 31, 2016 and 2015 was approximately $11,000 and $35,000, respectively. The intrinsic value of options exercisable at December 31, 2016 and 2015 was approximately $1,679,000 and $1,575,000, respectively.  The intrinsic value of options that vested during 2016 was approximately 34,000. The aggregate intrinsic value for all options outstanding as of December 31, 2016 and 2015 was approximately $1,744,000 and $1,652,000, respectively.   In September 2016, the Company issued an aggregate of 168,000 options to purchase shares of the Companys Common Stock to certain members of the Companys Board of Directors in return for their service from January 1, 2017 through December 31, 2017. Such options will vest at the rate of 12,000 options per month on the last day of each month during the 2017 year. The options have an exercise price of $1.37 per share and a term of 10 years. The Company will begin recognition of compensation based on the grant-date fair value ratably over the 2017 requisite service period.   In September 2015, the Company issued an aggregate of 144,000 options to purchase shares of the Companys Common Stock to certain members of the Companys Board of Directors in return for their service from January 1, 2016 through December 31, 2016. Such options vest at the rate of 12,000 options per month on the last day of each month during the 2016 year. The options have an exercise price of $1.73 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $178,000 the twelve months ended December 31, 2016 based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model.   In May 2016, the Company issued an aggregate of 16,000 options to purchase shares of the Companys Common Stock to a new member of the Companys Board of Directors in return for their service from May 2016 through December 31, 2016. Such options vest at the rate of 2,000 options per month on the last day of each month during the 2016 year. The options have an exercise price of $1.29 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $12,000 for the twelve months ended December 31, 2016 based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model.   Restricted Stock Awards   There were no restricted stock awards issued during the years ended December 31, 2016 and 2015.   In December 2014, the Company issued 94,116 shares of its Common Stock to certain members of the Companys Board of Directors as compensation for services to be rendered through December 2015.  Such shares vested monthly over the 12 months of 2015 with any unvested shares being forfeitable should the Board members service be terminated during 2015. For the year ended December 31, 2015, the Company recorded approximately $216,000 as compensation expense related to this stock issuance.   In December 2013, the Company issued 144,000 shares of its Common Stock to certain members of the Company's Board of Directors as compensation for services to be rendered through December 2014. Such shares are forfeitable should the Board members' service be terminated. For the year ended December 31, 2014, the Company recorded approximately $238,000 as compensation expense.   Stock-based Compensation   Stock-based compensation related to equity options and restricted stock has been classified as follows in the accompanying consolidated statements of operations (in thousands):   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="10" style="border-bottom: black 1pt solid; text-align: center">Year Ended December 31,</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: center">2016</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: center">2015</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2014</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 67%">Cost of revenues</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">20</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">15</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">12</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>General and administrative</td> <td> </td> <td> </td> <td style="text-align: right">714</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">618</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">572</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Sales and marketing</td> <td> </td> <td> </td> <td style="text-align: right">224</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">171</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">142</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Research and development</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">204</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">156</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">130</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Total</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt">$</td> <td style="padding-bottom: 1.85pt; text-align: right">1,162</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt">$</td> <td style="padding-bottom: 1.85pt; text-align: right">960</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td>$</td> <td style="text-align: right">856</td> <td style="padding-bottom: 1.85pt"> </td></tr> </table>   Common Stock Reserved for Future Issuance   The following table summarizes the Common Stock reserved for future issuance as of December 31, 2016:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Common Stock</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2" style="text-align: center"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 90%">Convertible preferred stock Series B, Series E, Series F and Series G</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 7%; text-align: right">11,709,151</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>Convertible lines of credit</td> <td> </td> <td> </td> <td style="text-align: right">2,201,903</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Stock options outstanding</td> <td> </td> <td> </td> <td style="text-align: right">6,506,843</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Warrants outstanding</td> <td> </td> <td> </td> <td style="text-align: right">175,000</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Authorized for future grant under stock option plans</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">55,938</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1.85pt"> </td> <td> </td> <td style="text-align: right">20,648,835</td> <td style="padding-bottom: 1.85pt"> </td></tr> </table>

During 1995, the Company adopted a defined contribution 401(k) retirement plan (the Plan). All U.S. based employees aged 21 years and older are eligible to become participants after the completion of 60 day’s employment. The Plan provides for annual contributions by the Company of 50% of employee contributions not to exceed 8% of employee compensation.  Effective April 1, 2009, the Plan was amended to provide for Company contributions on a discretionary basis. Participants may contribute up to 100% of the annual contribution limitations determined by the Internal Revenue Service.   Employees are fully vested in their share of the Companys contributions after the completion of five years of service. In 2014, the Company authorized contributions of approximately $118,000 for the 2014 plan year of which $88,000 were paid prior to December 31, 2014.  In 2015, the Company authorized contributions of approximately $119,000 for the 2015 plan year of which $83,000 were paid prior to December 31, 2015. In 2016, the Company authorized contributions of approximately $150,000 for the 2016 plan year of which $111,000 were paid prior to December 31, 2016.

One of the Companys dormant foreign subsidiaries maintains a defined benefit pension plan that provides benefits based on length of service and final average earnings. The following table sets forth the benefit obligation, fair value of plan assets, and the funded status of the Companys plan; amounts recognized in the Companys consolidated financial statements; and the assumptions used in determining the actuarial present value of the benefit obligations as of December 31:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Change in benefit obligation:</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Benefit obligation at beginning of year</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">3,068</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">3,488</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">2,821</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Service cost</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest cost</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">75</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">70</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">106</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Actuarial (gain) loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">542</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(123</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,003</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of exchange rate changes</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(114</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(356</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(442</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of curtailment</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Benefits paid</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(31</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(11</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Benefit obligation at end of year</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3,540</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3,068</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">3,488</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Change in plan assets:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Fair value of plan assets at beginning of year</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,557</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,654</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,790</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Actual return of plan assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">142</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">40</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">47</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Company contributions</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">28</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">34</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">43</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Benefits paid</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(31</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of exchange rate changes</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(51</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(171</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(226</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Fair value of plan assets at end of year</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,645</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,557</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">1,654</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Funded status</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,895</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,511</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,834</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Unrecognized actuarial loss (gain)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,831</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,413</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,911</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Unrecognized prior service (benefit) cost</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Additional minimum liability</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,831</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,413</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,911</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Unrecognized transition (asset) liability</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net amount recognized</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,895</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,511</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(1,834</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Plan Assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Pension plan assets were comprised of the following asset categories at December 31,</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Equity securities</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">5.7</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">5.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6.4</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Debt securities</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">87.2</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">89.3</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">87.4</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">7.1</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">5.7</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">6.2</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">100</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">100</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">100</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Components of net periodic benefit cost are as follows:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Service cost</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest cost on projected benefit obligations</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">75</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">70</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">106</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Expected return on plan assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Amortization of prior service costs</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Amortization of actuarial loss</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net periodic benefit costs</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">75</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">70</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">106</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Discount rate</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1.7</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.4</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.2</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Expected return on plan assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4.0</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Rate of pension increases</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.0</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Rate of compensation increase</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">N/A</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">N/A</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">N/A</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">The following discloses information about the Companys defined benefit pension plan that had an accumulated benefit obligation in excess of plan assets as of December 31,</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Projected benefit obligation</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,540</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,068</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,488</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Accumulated benefit obligation</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,540</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,068</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,488</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Fair value of plan assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,645</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,557</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,654</td> <td style="font-weight: bold"> </td></tr> </table>    As of December 31, 2016, the following benefit payments are expected to be paid as follows (in thousands):   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="width: 89%; font-weight: bold">2017</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 8%; font-weight: bold; text-align: right">76</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2018</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">78</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2019</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">80</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2020</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">81</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2021</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">97</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2022 2026</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">624</td> <td style="font-weight: bold"> </td></tr> </table>   The Company made contributions to the plan of approximately $28,000 during year 2016, $34,000 during year 2015 and approximately $43,000 during 2014.   The investment objectives for the plan are the preservation of capital, current income and long-term growth of capital. The Companys pension assets are classified within Level 1 of the fair value hierarchy, as defined under ASC 820, because they are valued using market prices. The pension assets are primarily comprised of the cash surrender value of insurance contracts. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The measurement date used to determine the benefit information of the plan was January 1, 2017.

Accumulated other comprehensive income is the combination of the additional minimum liability related to the Companys defined benefit pension plan, recognized pursuant to ASC 715-30, Compensation - Retirement Benefits - Defined Benefit Plans Pension and the accumulated gains or losses from foreign currency translation adjustments. The Company translates foreign currencies of its German, Canadian and Mexican subsidiaries into U.S. dollars using the period end exchange rate. Revenue and expenses were translated using the weighted-average exchange rates for the reporting period.  All items are shown net of tax.   As of December 31, 2016, 2015 and 2014, the components of accumulated other comprehensive loss were as follows:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Additional minimum pension liability</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(1,338</td> <td style="width: 1%; font-weight: bold">)</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(991</td> <td style="width: 1%; font-weight: bold">)</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(1,323</td> <td style="width: 1%; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Foreign currency translation adjustment</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(205</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(204</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(271</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Ending balance</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,543</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,195</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(1,594</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> </table>

The following table sets forth selected quarterly financial data for 2016, 2015 and 2014 (in thousands, except share and per share data):   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2016 (by quarter)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr> <td style="vertical-align: bottom; width: 43%; font-weight: bold"> </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    1 </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    2 </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    3 </td> <td style="vertical-align: bottom; width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    4 </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Revenues</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,043</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">996</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">848</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">925</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Cost of Sales</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">279</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">275</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">232</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">284</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Operating expenses</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3,028</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,995</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,955</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">3,226</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Loss from Operations</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,264</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,274</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,339</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,585</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">11</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">36</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">89</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">109</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(200</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">-</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">-</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Income tax expense (benefit)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">4</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">11</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,277</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,114</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,431</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(2,705</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.01</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic loss per share to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,073,367</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,298,567</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,550,721</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,779,243</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2015 (by quarter)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr> <td style="vertical-align: bottom; width: 43%; font-weight: bold"> </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    1 </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    2 </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    3 </td> <td style="vertical-align: bottom; width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    4 </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Revenues</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">991</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,695</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,181</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">902</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Cost of Sales</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">286</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">798</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">321</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">539</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Operating expenses</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,641</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,660</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,813</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">2,921</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Loss from Operations</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,936</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,763</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,953</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,558</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">437</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">11</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(46</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(99</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Income tax expense (benefit)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">6</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">10</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,330</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,767</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,858</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(2,579</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic loss per share to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,515,640</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,674,349</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,876,339</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,070,895</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014 (by quarter)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr> <td style="vertical-align: bottom; width: 43%; font-weight: bold"> </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    1 </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    2 </td> <td style="vertical-align: bottom; width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    3 </td> <td style="vertical-align: bottom; width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    4 </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 3%"> </td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Revenues</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,063</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">937</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">919</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,240</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Cost of Sales</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">251</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">232</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">248</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">261</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Operating expenses</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,706</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,667</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,793</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">2,797</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Loss from Operations</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,894</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,962</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,122</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,818</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">79</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">105</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">104</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">128</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(283</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(5</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(8</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Income tax expense (benefit)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">12</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">10</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,690</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,074</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,228</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(1,948</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic loss per share to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">88,604,221</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">91,930,400</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,162,548</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">93,384,834</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

Subsequent to December 31, 2016, the Company has borrowed an additional $500,000 through March 30, 2017 under the Lines of Credit.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Companys wholly-owned subsidiaries are XImage Corporation, a California Corporation, ImageWare Systems ID Group, Inc. a Delaware corporation (formerly Imaging Technology Corporation), I.W. Systems Canada Company, a Nova Scotia unlimited liability company, ImageWare Digital Photography Systems, Inc., LLC a Nevada limited liability company (formerly Castleworks LLC), Digital Imaging International GmbH, a company formed under German laws and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated.

Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle.

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for doubtful accounts receivable, inventory carrying values, deferred tax asset valuation allowances, accounting for loss contingencies, recoverability of goodwill and acquired intangible assets and amortization periods, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, assumptions used in the application of fair value methodologies to calculate the fair value of derivative liabilities, revenue and cost of revenues recognized under the percentage of completion method and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates.

The Company defines cash equivalents as highly liquid investments with original maturities of less than 90 days that are not held for sale in the ordinary course of business.

In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers ability to pay to determine the level of allowance required.  Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful.

Finished goods inventories are stated at the lower of cost, determined using the average cost method, or market. See Note 6.

Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

For certain of the Companys financial instruments, including accounts receivable, accounts payable, accrued expenses, deferred revenues and lines of credit payable to related parties, the carrying amounts approximate fair value due to their relatively short maturities.

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.   The Company reviews the terms of the common and preferred stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.   Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.   The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.

The Company recognizes revenue from the following major revenue sources:   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Long-term fixed-price contracts involving significant customization;</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Fixed-price contracts involving minimal customization;</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Software licensing;</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Sales of computer hardware and identification media; and</td></tr> </table>   <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 30px; padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">●</td> <td style="padding: 0.75pt; font: bold 8pt Times New Roman, Times, Serif; text-align: justify">Post-contract customer support ( PCS).</td></tr> </table>   The Companys revenue recognition policies are consistent with U.S. GAAP including the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 985-605, Software Revenue Recognition, ASC 605-35 Revenue Recognition, Construction-Type and Production-Type Contracts, Securities and Exchange Commission Staff Accounting Bulletin 104, and ASC 605-25 Revenue Recognition, Multiple Element Arrangements. Accordingly, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured.   The Company recognizes revenue and profit as work progresses on long-term, fixed-price contracts involving significant amount of hardware and software customization using the percentage of completion method based on costs incurred to date compared to total estimated costs at completion. The primary components of costs incurred are third party software and direct labor cost including fringe benefits. Revenues recognized in excess of amounts billed are classified as current assets under Costs and estimated earnings in excess of billings on uncompleted contracts. Amounts billed to customers in excess of revenues recognized are classified as current liabilities under Billings in excess of costs and estimated earnings on uncompleted contracts. Revenue from contracts for which the Company cannot reliably estimate total costs or there are not significant amounts of customization are recognized upon completion. For contracts that require significant amounts of customization that the Company accounts for under the completed contract method of revenue recognition, the Company defers revenue recognition until customer acceptance is received. For contracts containing either extended or dependent payment terms, revenue recognition is deferred until such time as payment has been received by the Company. The Company also generates non-recurring revenue from the licensing of its software. Software license revenue is recognized upon the execution of a license agreement, upon deliverance, when fees are fixed and determinable, when collectability is probable, when all other significant obligations have been fulfilled and the Company has obtained vendor specific objective evidence (VSOE) of the fair value of the undelivered element. VSOE of fair value for customer support services is determined by reference to the price the customer pays for such element when sold separately; that is, the renewal rate offered to customers. In those instances when objective and reliable evidence of fair value exists for the undelivered items but not for the delivered items, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of arrangement consideration allocated to the delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items. The Company also generates revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer. The Companys revenue from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant obligations remain and collectability of the related receivable is probable. Pricing of maintenance contracts is consistent period to period and calculated as a percentage of the software or hardware revenue.  Amounts collected in advance for maintenance services are included in current liabilities under "Deferred revenue". Sales tax collected from customers is excluded from revenue.

The Company accounts for its intangible assets under the provisions of ASC 350, Intangibles - Goodwill and Other. In accordance with ASC 350, intangible assets with a definite life are analyzed for impairment under ASC 360-10-05 Property, Plant and Equipment and intangible assets with an indefinite life are analyzed for impairment under ASC 360 annually, or more often if circumstances dictate. The Company performs its annual goodwill impairment test in the fourth quarter of each year, or if required, at the end of each fiscal quarter.  In accordance with ASC 350, goodwill, or the excess of cost over fair value of net assets acquired is tested for impairment using a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Companys reporting unit is at the entity level. The Company recognizes an impairment charge for any amount by which the carrying amount of a reporting units goodwill exceeds its fair value. The Company uses fair value methodologies to establish fair values.   The Company did not record any goodwill impairment charges for the years ended December 31, 2016, 2015 or 2014.

Intangible assets are carried at their cost less any accumulated amortization.  Any costs incurred to renew or extend the life of an intangible or long lived asset are reviewed for capitalization.  The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Companys management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Companys products under development will continue. Either of these could result in future impairment of long-lived assets.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high quality financial institutions and at times during the years ended December 31, 2016 and 2015 exceeded the FDIC insurance limits of $250,000. Sales are typically made on credit and the Company generally does not require collateral. The Company performs ongoing credit evaluations of its customers financial condition and maintains an allowance for doubtful accounts. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers ability to pay to determine the level of allowance required. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $1,000 and $3,000 at December 31, 2016 and 2015, respectively.   For the year ended December 31, 2016 two customers accounted for approximately 30% or $1,162,000 of total revenues and had trade receivables of $78,000 as of the end of the year.  For the year ended December 31, 2015 two customers accounted for approximately 37% or $1,753,000 of total revenues and had trade receivables of $78,000 as of the end of the year. For the year ended December 31, 2014, one customer accounted for approximately 17% or $725,000 of total revenues and $0 trade receivables as of the end of the year.

At December 31, 2016, the Company had one stock-based compensation plan for employees and nonemployee directors, which authorize the granting of various equity-based incentives including stock options and restricted stock.   The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, Compensation Stock Compensation. The fair value of stock options granted is recognized to expense over the requisite service period. Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Stock-based compensation expense is reported in operating expenses based upon the departments to which substantially all of the associated employees report and credited to additional paid-in-capital. Stock-based compensation expense related to equity options was approximately $1,162,000, $744,000 and $618,000 for the years ended December 31, 2016, 2015 and 2014, respectively.   ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Companys Common Stock. Historical volatility factors utilized in the Companys Black-Scholes computations for options granted during the years ended December 31, 2016, 2015 and 2014 ranged from 65% to 116%. The Company has elected to estimate the expected life of an award based upon the SEC approved simplified method noted under the provisions of Staff Accounting Bulletin No. 110. The expected term used by the Company during the years ended December 31, 2016, 2015 and 2014 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Companys Black-Scholes calculations for the years ended December 31, 2016, 2015 and 2014 averaged 2.6%. Dividend yield is zero as the Company does not expect to declare any dividends on the Companys common shares in the foreseeable future.   In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has estimated an annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. The Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience.   Restricted stock units are recorded at the grant date fair value with corresponding compensation expense recorded ratably over the requisite service period.

Current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The financial position and results of operations of the Companys foreign subsidiaries are measured using the foreign subsidiarys local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. dollars at weighted-average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders equity, unless there is a sale or complete liquidation of the underlying foreign investments. The Company translates foreign currencies of its German, Canadian and Mexican subsidiaries. The cumulative translation adjustment, which is recorded in accumulated other comprehensive loss, decreased approximately $1,000 for the year ended December 31, 2016, increased approximately $67,000 for the year ended December 31, 2015 and decreased approximately $20,000 for the year ended December 31, 2014.

Comprehensive loss consists of net gains and losses affecting shareholders equity that, under generally accepted accounting principles, are excluded from net loss. For the Company, the only items are the cumulative translation adjustment and the additional minimum liability related to the Companys defined benefit pension plan, recognized pursuant to ASC 715-30, "Compensation - Retirement Benefits - Defined Benefit Plans Pension".

The Company expenses advertising costs as incurred. The Company incurred approximately $24,000 in advertising expenses during the year ended December 31, 2016, $12,000 in advertising expenses during the year ended December 31, 2015 and $9,000 during the year ended December 31, 2014.

Basic loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period, adjusted to include, if dilutive, potential dilutive shares consisting of convertible preferred stock, convertible notes payable, stock options and warrants, calculated using the treasury stock and if-converted methods.  For diluted loss per share calculation purposes, the net loss available to commons shareholders is adjusted to add back any preferred stock dividends and any interest on convertible debt reflected in the consolidated statement of operations for the respective periods.   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">(Amounts in thousands, except share and per share amounts)</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="10" style="font-weight: bold; text-align: center">Year Ended December 31,</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Numerator for basic and diluted loss per share:</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Net loss</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(9,527</td> <td style="width: 1%; font-weight: bold">)</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(8,534</td> <td style="width: 1%; font-weight: bold">)</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(7,940</td> <td style="width: 1%; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(1,347</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(1,065</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(51</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss available to common shareholders</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(10,874</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(9,599</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(7,991</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Denominator for basic loss per share weighted-average shares outstanding</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,426,783</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">93,786,079</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">91,795,971</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of dilutive securities</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Denominator for diluted loss per share weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,426,783</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,786,079</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">91,795,971</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic and diluted loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.10</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.01</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss available to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.12</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.10</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> </table>    The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as their effect would have been antidilutive:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>   Potential Dilutive Securities:</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Convertible lines of credit</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right">2,201,903</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right"></td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right">1,649,548</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series B</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series E</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,315,789</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,442,105</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series F</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,333,333</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series G</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4,014,000</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Stock options</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,506,843</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">5,376,969</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4,057,296</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Warrants</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">175,000</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">450,000</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">977,778</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total Potential Dilutive Securities</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">20,592,897</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">12,315,103</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,730,651</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), or other standard setting bodies, which are adopted by us as of the specified effective date. Unless otherwise discussed, the Companys management believes the impact of recently issued standards not yet effective will not have a material impact on the Companys consolidated financial statements upon adoption.   FASB ASU No. 2014-09. In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB finalized a one-year deferral of the effective date of the new standard. For public entities, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Calendar year-end public companies are therefore required to apply the revenue guidance beginning in their 2018 interim and annual financial statements. The standard permits the use of either the retrospective or cumulative effect transition method. We currently anticipate adopting the standard using the cumulative effect transition method during the first fiscal quarter in 2018.   FASB ASU No. 2014-15. In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, which provides guidance on managements responsibility in evaluating whether there is substantial doubt about a companys ability to continue as a going concern and to provide related footnote disclosures. ASU No. 2014-15 became effective in the fourth quarter of 2016. The adoption of ASU No. 2014-15 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2015-03. In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. The standard became effective for the Company beginning January 1, 2016. The adoption of ASU No. 2015-03 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2015-11. In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in ASU No. 2015-11 require an entity of measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. For public business entities, the amendments in ASU No. 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2016-01. In January 2016, the FASB issued ASU 2016-01, Financial InstrumentsOverall - Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and apply to all entities that hold financial assets or owe financial liabilities. The amendments in this ASU also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. That impairment assessment is similar to the qualitative assessment for long-lived assets, goodwill, and indefinite-lived intangible assets. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with earlier application permitted for financial statements that have not been issued. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2018 and are currently evaluating the impact the adoption of this new accounting standard will have on our consolidated financial statements.   FASB ASU No. 2016-02. In February 2016, the FASB issued ASU No. 2016-02, Leases. This guidance will result in key changes to lease accounting and will aim to bring leases onto balance sheets to give investors, lenders, and other financial statement users a more comprehensive view of a company's long-term financial obligations as well as the assets it owns versus leases. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and anticipates commencement of adoption planning in the fourth fiscal quarter of 2018.   FASB ASU No. 2016-06. In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815) Contingent Put and Call Options in Debt Instruments (ASU 2016-06), which will reduce diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature of an exercise contingency is not subject to the clearly and closely criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The adoption of ASU No. 2016-06 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2016-08. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)(ASU 2016-08). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.   FASB ASU No. 2016-09. In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation Stock Compensation (Topic 718) (ASU 2016-09). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. The adoption ASU No. 2016-09 did not have a significant impact on our consolidated financial statements.   FASB ASU No. 2016-10. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). ASU 2016-10 provides further implementation guidance on identifying performance obligations and also improves the operability and understandability of the licensing implementation guidance. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.   FASB ASU No. 2016-13. In June 2016, the FASB issued Accounting Standard Update No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking expected loss model that will replace todays incurred loss model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. This guidance is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.   FASB ASU No. 2016-15. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.   FASB ASU No. 2017-04. In January 2017, the FASB issued ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments of this ASU eliminate step 2 from the goodwill impairment test. The annual, or interim test is performed by comparing the fair value of a reporting unit with its carrying amount. The amendments of this ASU also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and if it fails that qualitative test, to perform step 2 of the goodwill impairment test. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Potential Dilutive Securities:</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Common Share Equivalents at December 31, 2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Convertible lines of credit</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right">2,201,903</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right"></td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right">1,649,548</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series B</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">46,029</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series E</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,315,789</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,442,105</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series F</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,333,333</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Convertible redeemable preferred stock Series G</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4,014,000</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Stock options</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,506,843</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">5,376,969</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4,057,296</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Warrants</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">175,000</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">450,000</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">977,778</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total Potential Dilutive Securities</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">20,592,897</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">12,315,103</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6,730,651</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%; background-color: white"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">(Amounts in thousands, except share and per share amounts)</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="10" style="font-weight: bold; text-align: center">Year Ended December 31,</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Numerator for basic and diluted loss per share:</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Net loss</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(9,527</td> <td style="width: 1%; font-weight: bold">)</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(8,534</td> <td style="width: 1%; font-weight: bold">)</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">(7,940</td> <td style="width: 1%; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(1,347</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(1,065</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(51</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss available to common shareholders</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(10,874</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(9,599</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(7,991</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Denominator for basic loss per share weighted-average shares outstanding</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,426,783</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">93,786,079</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">91,795,971</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of dilutive securities</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Denominator for diluted loss per share weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,426,783</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,786,079</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">91,795,971</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic and diluted loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.10</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.01</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss available to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.12</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.10</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.09</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Fair Value at December 31, 2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold; text-align: center">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Total</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Level 1</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Level 2</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Level 3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Assets:</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 52%; font-weight: bold">   Pension assets</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,645</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,645</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">   Totals</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,645</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,645</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Fair Value at December 31, 2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold; text-align: center">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Total</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Level 1</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">Level 2</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Level 3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Assets:</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 52%; font-weight: bold">   Pension assets</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,557</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,557</td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="width: 1%; border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="width: 1%; padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">   Totals</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,557</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">1,557</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Fiscal Year Ended December 31,</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> Estimated Amortization Expense ($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 80%; font-weight: bold">2017</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 17%; font-weight: bold; text-align: right">12</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2018</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2019</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2020</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2021</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Thereafter</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">45</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">105</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td> ($ in thousands)  </td> <td style="font-weight: bold"> </td> <td colspan="2"> December 31, 2016</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2"> December 31, 2015</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Lines of Credit</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 80%; font-weight: bold">8% convertible lines of credit. Face value of advances under lines of credit $2,650 at December 31, 2016 and $0 at December 31, 2015, respectively. Discount on advances under lines of credit is $122 at December 31, 2016 and $0 at December 31, 2015, respectively. Maturity date is December 31, 2017.</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 7%; font-weight: bold; text-align: right">2,528</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 7%; font-weight: bold; text-align: right"></td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total lines of credit to related parties</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2,528</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Less current portion</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,528</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Long-term lines of credit to related parties</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">($ in thousands)</td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="10" style="border-bottom: black 1pt solid; text-align: center">Year Ended December 31,</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Current</td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2016</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2015</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2014</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 67%">Federal</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">—</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">—</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">—</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>State</td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Foreign</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">21</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">22</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">25</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Deferred</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Federal</td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>State</td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">—</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Foreign</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">21</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">22</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">25</td> <td style="padding-bottom: 3pt"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">($ in thousands)</td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2016</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2015</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2014</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 67%">Net operating loss carryforwards</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">17,829</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">15,948</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">14,200</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>Intangible and fixed assets</td> <td> </td> <td> </td> <td style="text-align: right">102</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">220</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">427</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Stock based compensation</td> <td> </td> <td> </td> <td style="text-align: right">2,324</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">1,861</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">1,565</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Reserves and accrued expenses</td> <td> </td> <td> </td> <td style="text-align: right">8</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">8</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Other</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">—</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(85</td> <td style="padding-bottom: 1.5pt">)</td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td style="text-align: right">20,263</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">18,037</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">  16,113</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Less valuation allowance</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(20,263</td> <td style="padding-bottom: 1.5pt">)</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(18,037</td> <td style="padding-bottom: 1.5pt">)</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(16,113</td> <td style="padding-bottom: 1.5pt">)</td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt; text-indent: 0.5in">Net deferred tax assets</td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">—</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">—</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">—</td> <td style="padding-bottom: 3pt"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt"> </td> <td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2016</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2015</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2014</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td colspan="3"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 67%">Amounts computed at statutory rates</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">(3,239</td> <td style="width: 1%">)</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">(2,902</td> <td style="width: 1%">)</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">(2,699</td> <td style="width: 1%">)</td></tr> <tr style="vertical-align: bottom"> <td>State income tax, net of federal benefit</td> <td> </td> <td> </td> <td style="text-align: right">(462</td> <td>)</td> <td> </td> <td> </td> <td style="text-align: right">(262</td> <td>)</td> <td> </td> <td> </td> <td style="text-align: right">(212</td> <td>)</td></tr> <tr style="vertical-align: bottom"> <td>Expiration of net operating loss carryforwards</td> <td> </td> <td> </td> <td style="text-align: right">1,082</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">695</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">708</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Non-deductible interest </td> <td> </td> <td> </td> <td style="text-align: right">49</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">149</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">145</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Foreign taxes</td> <td> </td> <td> </td> <td style="text-align: right">362</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">413</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">386</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Other</td> <td> </td> <td> </td> <td style="text-align: right">3</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">5</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">4</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Net change in valuation allowance on deferred tax assets</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">2,226</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,924</td> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,693</td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">21</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">22</td> <td style="padding-bottom: 3pt"> </td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">25</td> <td style="padding-bottom: 3pt"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%; background-color: white"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">($ in thousands)</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 88%; font-weight: bold">2017</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">450</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2018</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">201</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2019</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">34</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2020</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">34</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">2021</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">9</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">728</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Common Stock</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 88%; font-weight: bold">Shares outstanding at December 31, 2013</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 9%; font-weight: bold; text-align: right">87,548,613</td> <td style="width: 1%; padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to warrants exercised for cash</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4,742,632</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to cashless warrants exercised</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">868,565</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Conversion of related-party notes payable into Common Stock</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">154,607</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued as compensation in lieu of cash</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,116</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to option exercises</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">98,617</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Shares outstanding at December 31, 2014</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">93,507,150</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to payment of stock dividend on Series E Preferred</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">478,664</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to cashless warrants exercised</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">45,376</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to option exercises</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">39,705</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Shares outstanding at December 31, 2015</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,070,895</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to payment of stock dividend on Series E Preferred</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">950,362</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to payment of stock dividend on Series F Preferred</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">48,513</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to payment of stock dividend on Series G Preferred</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">3,770</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to cashless warrants exercised</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">144,459</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Shares issued pursuant to option exercises</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">12,626</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">     Exchange of common shares for Series G Preferred</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(3,383,830</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Shares outstanding at December 31, 2016</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">91,846,795</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> Warrants  </td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> Weighted- Average Exercise Price</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td colspan="2" style="text-align: center"> </td> <td> </td> <td> </td> <td colspan="2" style="text-align: center"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 81%">Balance at December 31, 2013</td> <td style="width: 1%; padding-bottom: 1.85pt"> </td> <td style="width: 6%; padding-bottom: 1.85pt; text-align: right">6,598,416</td> <td style="width: 1%; padding-bottom: 1.85pt"> </td> <td style="width: 1%; padding-bottom: 1.85pt"> </td> <td style="width: 1%">$</td> <td style="width: 8%; text-align: right">0.63</td> <td style="width: 1%; padding-bottom: 1.85pt"> </td></tr> <tr style="vertical-align: bottom"> <td>    Granted</td> <td> </td> <td style="text-align: right">302,778</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">2.02</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Expired / Canceled</td> <td> </td> <td style="text-align: right">(55,000</td> <td>)</td> <td> </td> <td>$</td> <td style="text-align: right">1.10</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(5,868,416</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid">$</td> <td style="border-bottom: black 1pt solid; text-align: right">0.58</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2014</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt; text-align: right">977,778</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td>$</td> <td style="text-align: right">1.22</td> <td style="padding-bottom: 1.85pt"> </td></tr> <tr style="vertical-align: bottom"> <td>    Granted</td> <td> </td> <td style="text-align: right"></td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">0.00</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Expired / Canceled</td> <td> </td> <td style="text-align: right">(419,444</td> <td>)</td> <td> </td> <td>$</td> <td style="text-align: right">1.86</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(108,334</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid">$</td> <td style="border-bottom: black 1pt solid; text-align: right">1.01</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2015</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt; text-align: right">450,000</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td>$</td> <td style="text-align: right">0.67</td> <td style="padding-bottom: 1.85pt"> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(275,000</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right"> </td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2016</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt; text-align: right">175,000</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td> </td> <td style="text-align: right"> </td> <td style="padding-bottom: 1.85pt"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: center">Options</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> Weighted- Average Exercise Price</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> Weighted- Average Remaining Contractual Term (Years)</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 58%">Balance at December 31, 2013</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">3,783,411</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">0.94</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">7.4</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>Granted</td> <td> </td> <td> </td> <td style="text-align: right">435,000</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">2.13</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"></td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Expired/Cancelled</td> <td> </td> <td> </td> <td style="text-align: right">(62,498</td> <td>)</td> <td> </td> <td>$</td> <td style="text-align: right">1.96</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"></td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(98,617</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">0.68</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right"></td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2014</td> <td> </td> <td> </td> <td style="text-align: right">4,057,296</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">1.06</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6.8</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Granted</td> <td> </td> <td> </td> <td style="text-align: right">2,110,000</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">1.63</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"></td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Expired/Cancelled</td> <td> </td> <td> </td> <td style="text-align: right">(750,622</td> <td>)</td> <td> </td> <td>$</td> <td style="text-align: right">1.86</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"></td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(39,705</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">0.87</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right"></td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2015</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">5,376,969</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">1.17</td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">6.9</td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td>Granted</td> <td> </td> <td> </td> <td style="text-align: right">1,264,000</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">1.34 </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">- </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>Expired/Cancelled</td> <td> </td> <td> </td> <td style="text-align: right">(121,500</td> <td>)</td> <td> </td> <td> </td> <td style="text-align: right">1.29 </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">- </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>    Exercised</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">(12,626</td> <td style="padding-bottom: 0.95pt">)</td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; text-align: right">0.21 </td> <td style="padding-bottom: 0.95pt"> </td> <td style="padding-bottom: 0.95pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">- </td> <td style="padding-bottom: 0.95pt"> </td></tr> <tr style="vertical-align: bottom"> <td>Balance at December 31, 2016</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt; text-align: right">6,506,843</td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt">$</td> <td style="padding-bottom: 1.85pt; text-align: right">1.21 </td> <td style="padding-bottom: 1.85pt"> </td> <td style="padding-bottom: 1.85pt"> </td> <td> </td> <td style="text-align: right">6.6 </td> <td style="padding-bottom: 1.85pt"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%; background-color: white"> <tr style="vertical-align: bottom"> <td style="font-weight: bold">($ in thousands)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2016</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: center">2015</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Change in benefit obligation:</td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 64%; font-weight: bold">Benefit obligation at beginning of year</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">3,068</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">3,488</td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold"> </td> <td style="width: 1%; font-weight: bold">$</td> <td style="width: 9%; font-weight: bold; text-align: right">2,821</td> <td style="width: 1%; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Service cost</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest cost</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">75</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">70</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">106</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Actuarial (gain) loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">542</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(123</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,003</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of exchange rate changes</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(114</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(356</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(442</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of curtailment</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Benefits paid</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(31</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(11</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Benefit obligation at end of year</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3,540</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3,068</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">3,488</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Change in plan assets:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Fair value of plan assets at beginning of year</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,557</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,654</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,790</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Actual return of plan assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">142</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">40</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">47</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Company contributions</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">28</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">34</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">43</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Benefits paid</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(31</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Effect of exchange rate changes</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(51</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(171</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(226</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Fair value of plan assets at end of year</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,645</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">1,557</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">1,654</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Funded status</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,895</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,511</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,834</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Unrecognized actuarial loss (gain)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,831</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,413</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1,911</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Unrecognized prior service (benefit) cost</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Additional minimum liability</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,831</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,413</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,911</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Unrecognized transition (asset) liability</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net amount recognized</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,895</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,511</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(1,834</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Plan Assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Pension plan assets were comprised of the following asset categories at December 31,</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Equity securities</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">5.7</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">5.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">6.4</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Debt securities</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">87.2</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">89.3</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">87.4</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">7.1</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">5.7</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">6.2</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Total</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">100</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">100</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">100</td> <td style="padding-bottom: 0.95pt; font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Components of net periodic benefit cost are as follows:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Service cost</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest cost on projected benefit obligations</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">75</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">70</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">106</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Expected return on plan assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Amortization of prior service costs</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Amortization of actuarial loss</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net periodic benefit costs</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">75</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">70</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">106</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Discount rate</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1.7</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.4</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.2</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Expected return on plan assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">4.0</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Rate of pension increases</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.0</td> <td style="font-weight: bold">%</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">2.0</td> <td style="font-weight: bold">%</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Rate of compensation increase</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">N/A</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">N/A</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">N/A</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">The following discloses information about the Companys defined benefit pension plan that had an accumulated benefit obligation in excess of plan assets as of December 31,</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Projected benefit obligation</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,540</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,068</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,488</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Accumulated benefit obligation</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,540</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,068</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">3,488</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Fair value of plan assets</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,645</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,557</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,654</td> <td style="font-weight: bold"> </td></tr> </table>

<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2016 (by quarter)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr> <td style="vertical-align: bottom; width: 43%; font-weight: bold"> </td> <td style="vertical-align: bottom; width: 8%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    1 </td> <td style="vertical-align: bottom; width: 8%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    2 </td> <td style="vertical-align: bottom; width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    3 </td> <td style="vertical-align: bottom; width: 8%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    4 </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 5%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 5%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 5%"> </td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Revenues</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,043</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">996</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">848</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">925</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Cost of Sales</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">279</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">275</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">232</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">284</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Operating expenses</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3,028</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,995</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,955</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">3,226</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Loss from Operations</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,264</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,274</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,339</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,585</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">11</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">36</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">89</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">109</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(200</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">-</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">-</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Income tax expense (benefit)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">4</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">11</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,277</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,114</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,431</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(2,705</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.01</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic loss per share to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,073,367</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,298,567</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">94,550,721</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,779,243</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2015 (by quarter)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr> <td style="vertical-align: bottom; width: 43%; font-weight: bold"> </td> <td style="vertical-align: bottom; width: 8%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    1 </td> <td style="vertical-align: bottom; width: 8%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    2 </td> <td style="vertical-align: bottom; width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    3 </td> <td style="vertical-align: bottom; width: 8%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    4 </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 5%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 5%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 5%"> </td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Revenues</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">991</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,695</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,181</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">902</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Cost of Sales</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">286</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">798</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">321</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">539</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Operating expenses</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,641</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,660</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,813</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">2,921</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Loss from Operations</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,936</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,763</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,953</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,558</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">437</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">1</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">11</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(46</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(99</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"></td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Income tax expense (benefit)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">6</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">10</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,330</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,767</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,858</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(2,579</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic loss per share to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.03</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,515,640</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,674,349</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,876,339</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">94,070,895</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td colspan="14" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014 (by quarter)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr> <td style="vertical-align: bottom; font-weight: bold"> </td> <td style="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    1 </td> <td style="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    2 </td> <td style="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    3 </td> <td style="vertical-align: bottom; border-bottom: black 1pt solid; font-weight: bold; text-align: center">    4 </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Revenues</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,063</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">937</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">919</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">1,240</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Cost of Sales</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">251</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">232</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">248</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">261</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Operating expenses</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,706</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,667</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">2,793</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">2,797</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Loss from Operations</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,894</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,962</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(2,122</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1,818</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Interest expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">79</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">105</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">104</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">128</td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Other expense (income), net</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(283</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(5</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(1</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">(8</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Income tax expense (benefit)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right"></td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">12</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">3</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">10</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(1,690</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,074</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(2,228</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(1,948</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss per share:</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right"> </td> <td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Net loss</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td> <td style="font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Preferred dividends</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; padding-bottom: 0.95pt; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td> <td style="padding-bottom: 0.95pt; font-weight: bold"> </td> <td style="border-bottom: black 1pt solid; font-weight: bold">$</td> <td style="border-bottom: black 1pt solid; font-weight: bold; text-align: right">(0.00</td> <td style="padding-bottom: 0.95pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic loss per share to common shareholders</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold">$</td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold">$</td> <td style="font-weight: bold; text-align: right">(0.02</td> <td style="padding-bottom: 1.85pt; font-weight: bold">)</td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Basic weighted-average shares outstanding</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">88,604,221</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">91,930,400</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold; text-align: right">93,162,548</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td> <td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: right">93,384,834</td> <td style="padding-bottom: 1.85pt; font-weight: bold"> </td></tr> </table>

0.1

0.01

0.1

0.01

0.1

0.01

20592897

12315103

6730651

46029

6442105

6315789

2201903

6506843

5376969

175000

450000

1649548

4057296

977778

1333333

4014000

250000

1000

3000

0.30

0.37

0.17

1162000 1753000 725000 78000 78000 0

1162000

744000

618000

0.65

1.16

P5Y2M1D

0.026

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The Fourth Amendment (i) provides the Company with the ability to borrow up to $5.0 million under the terms of the Goldman LOC; (ii) permits Goldman to convert the outstanding principal, plus any accrued but unpaid interest due under the Goldman LOC (the "Outstanding Balance"), into shares of the Company's Common Stock for $1.25 per share; and (iii) extends the maturity date of the Goldman LOC to June 30, 2017.

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The New Crocker LOC accrues interest at a rate of 8% per annum, and matures on the earlier to occur of June 30, 2017 or such date that the Company consummates a debt and/or equity financing resulting in net proceeds to the Company of at least $3.5 million. All outstanding amounts due under the terms of the New Crocker LOC are convertible into shares of the Company's Common Stock at $1.25 per share.

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The following table sets forth the Companys activity under its Lines of Credit for the periods indicated:   <table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="width: 88%">Balance outstanding under Lines of Credit as of December 31, 2014</td> <td style="width: 1%; padding-bottom: 2.3pt"> </td> <td style="width: 1%">$</td> <td style="width: 9%; text-align: right">1,550</td> <td style="width: 1%; padding-bottom: 2.3pt"> </td></tr> <tr style="vertical-align: bottom"> <td>     Borrowing under Lines of Credit</td> <td> </td> <td> </td> <td style="text-align: right">750</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>     Repayments</td> <td> </td> <td> </td> <td style="text-align: right">(350</td> <td>)</td></tr> <tr style="vertical-align: bottom"> <td>     Exchange of Indebtedness for Series E Preferred Stock</td> <td style="padding-bottom: 1.15pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(1,950</td> <td style="padding-bottom: 1.15pt">)</td></tr> <tr style="vertical-align: bottom"> <td>Balance outstanding under Lines of Credit as of December 31, 2015</td> <td style="padding-bottom: 2.3pt"> </td> <td>$</td> <td style="text-align: right"></td> <td style="padding-bottom: 2.3pt"> </td></tr> <tr style="vertical-align: bottom"> <td>     Borrowings under Lines of Credit</td> <td> </td> <td> </td> <td style="text-align: right">2,650</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>     Repayments</td> <td style="padding-bottom: 1.15pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right"></td> <td style="padding-bottom: 1.15pt"> </td></tr> <tr style="vertical-align: bottom"> <td>Balance outstanding under Lines of Credit as of December 31, 2016</td> <td style="padding-bottom: 2.3pt"> </td> <td>$</td> <td style="text-align: right">2,650</td> <td style="padding-bottom: 2.3pt"> </td></tr> </table>

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Is Entity a Voluntary Filer? Is Entity's Reporting Status Current? Entity Filer Category Entity Public Float Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Statement [Table] Statement [Line Items] Current Assets: Cash Accounts receivable, net of allowance for doubtful accounts of 1 and 3 at December 31, 2016 and 2015, respectively. Inventory, net Other current assets Total Current Assets Property and equipment, net Other assets Intangible assets, net of accumulated amortization Goodwill Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable Deferred revenue Accrued expenses Convertible lines of credit to related parties, net of discount Total Current Liabilities Pension obligation Total Liabilities Shareholders' Equity (Deficit): Preferred stock, authorized 4,000,000 shares Common Stock, $0.01 par value, 150,000,000 shares authorized; 91,853,499 and 94,077,599 shares issued at December 31, 2016 and 2015, respectively, and 91,846,795 and 94,070,895 shares outstanding at December Additional paid-in capital Treasury stock, at cost 6,704 shares Accumulated other comprehensive loss Accumulated deficit Total Shareholders' Equity (Deficit) Total Liabilities and Shareholders' Equity (Deficit) Accounts receivable, net of allowance for doubtful accounts Shareholders' equity: Preferred stock, shares authorized Preferred stock, par value per share Preferred stock, shares issued Preferred stock, shares outstanding Liquidation preference Common stock, par value Common stock, shares authorized Common stock, shares issued Common stock, shares outstanding Treasury stock, shares Income Statement [Abstract] Revenues: Product Maintenance Total Cost of revenues: Product Maintenance Gross profit Operating expenses: General and administrative Sales and marketing Research and development Depreciation and amortization Total Loss from operations Interest expense Other income, net Loss before income taxes Income tax expense Net loss Preferred dividends Net loss available to common shareholders Basic and diluted loss per common share - 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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2016	Mar. 20, 2017	Jun. 30, 2016
Document And Entity Information
Entity Registrant Name	IMAGEWARE SYSTEMS INC
Entity Central Index Key	0000941685
Document Type	10-K
Document Period End Date	Dec. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	No
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 69,127,864
Entity Common Stock, Shares Outstanding		91,846,795
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2016

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Current Assets:
Cash	$ 1,586	$ 3,352
Accounts receivable, net of allowance for doubtful accounts of 1 and 3 at December 31, 2016 and 2015, respectively.	287	349
Inventory, net	23	46
Other current assets	135	69
Total Current Assets	2,031	3,816
Property and equipment, net	93	162
Other assets	34	98
Intangible assets, net of accumulated amortization	105	117
Goodwill	3,416	3,416
Total Assets	5,680	7,609
Current Liabilities:
Accounts payable	425	198
Deferred revenue	1,045	1,059
Accrued expenses	1,047	1,149
Convertible lines of credit to related parties, net of discount	2,528
Total Current Liabilities	5,045	2,406
Pension obligation	1,895	1,511
Total Liabilities	6,940	3,917
Shareholders' Equity (Deficit):
Common Stock, $0.01 par value, 150,000,000 shares authorized; 91,853,499 and 94,077,599 shares issued at December 31, 2016 and 2015, respectively, and 91,846,795 and 94,070,895 shares outstanding at December	917	940
Additional paid-in capital	156,195	149,902
Treasury stock, at cost 6,704 shares	(64)	(64)
Accumulated other comprehensive loss	(1,543)	(1,195)
Accumulated deficit	(156,767)	(145,893)
Total Shareholders' Equity (Deficit)	(1,260)	3,692
Total Liabilities and Shareholders' Equity (Deficit)	5,680	7,609
Series B Preferred Stock [Member]
Shareholders' Equity (Deficit):
Preferred stock, authorized 4,000,000 shares	2	2
Series E Preferred Stock [Member]
Shareholders' Equity (Deficit):
Preferred stock, authorized 4,000,000 shares
Series F Preferred Stock [Member]
Shareholders' Equity (Deficit):
Preferred stock, authorized 4,000,000 shares
Series G Preferred Stock [Member]
Shareholders' Equity (Deficit):
Preferred stock, authorized 4,000,000 shares

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current Assets:
Accounts receivable, net of allowance for doubtful accounts	$ 1,000	$ 3,000
Shareholders' equity:
Common stock, par value	$ .01	$ 0.01
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	91,853,499	94,077,599
Common stock, shares outstanding	91,846,795	94,070,895
Treasury stock, shares	6,704	6,704
Series B Preferred Stock [Member]
Shareholders' equity:
Preferred stock, shares authorized	750,000	750,000
Preferred stock, par value per share	$ 0.1	$ 0.1
Preferred stock, shares issued	389,400	239,400
Preferred stock, shares outstanding	239,400	239,400
Liquidation preference	$ 607,000	$ 607,000
Series E Preferred Stock [Member]
Shareholders' equity:
Preferred stock, shares authorized	12,000	12,000
Preferred stock, par value per share	$ 0.01	$ 0.1
Preferred stock, shares issued	12,000	12,000
Preferred stock, shares outstanding	12,000	12,000
Liquidation preference	$ 12,000,000	$ 12,240,000
Series F Preferred Stock [Member]
Shareholders' equity:
Preferred stock, shares authorized	2,000	2,000
Preferred stock, par value per share	$ 0.1	$ 0.1
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	2,000	2,000
Liquidation preference	$ 2,000,000
Series G Preferred Stock [Member]
Shareholders' equity:
Preferred stock, shares authorized	6,120	6,120
Preferred stock, par value per share	$ 0.01	$ 0.01
Preferred stock, shares issued	6,021	0
Preferred stock, shares outstanding	6,021	0
Liquidation preference	$ 6,021,000

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenues:
Product	$ 1,249	$ 2,192	$ 1,634
Maintenance	2,563	2,577	2,525
Total	3,812	4,769	4,159
Cost of revenues:
Product	243	1,117	257
Maintenance	827	827	735
Gross profit	2,742	2,825	3,167
Operating expenses:
General and administrative	3,722	3,437	3,818
Sales and marketing	3,021	2,791	2,471
Research and development	5,332	4,643	4,495
Depreciation and amortization	129	164	179
Total	12,204	11,035	10,963
Loss from operations	(9,462)	(8,210)	(7,796)
Interest expense	245	447	416
Other income, net	(201)	(145)	(297)
Loss before income taxes	(9,506)	(8,512)	(7,915)
Income tax expense	21	22	25
Net loss	(9,527)	(8,534)	(7,940)
Preferred dividends	(1,347)	(1,065)	(51)
Net loss available to common shareholders	$ (10,874)	$ (9,599)	$ (7,991)
Basic and diluted loss per common share - see Note 2:
Net loss	$ (0.1)	$ (0.09)	$ (0.09)
Preferred dividends	(0.02)	(0.01)
Basic and diluted loss per share available to common shareholders	$ (0.12)	$ (0.1)	$ (0.09)
Basic and diluted weighted-average shares outstanding	94,426,783	93,786,079	91,795,971

XML 17 R5.htm IDEA: XBRL DOCUMENT

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Consolidated Statements Of Comprehensive Income Loss
Net loss	$ (9,527)	$ (8,534)	$ (7,940)
Other comprehensive income - loss:
Reduction - increase in additional minimum pension liability	(347)	332	(744)
Foreign currency translation adjustment	(1)	67	(20)
Comprehensive loss	$ (9,875)	$ (8,135)	$ (8,704)

XML 18 R6.htm IDEA: XBRL DOCUMENT

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) - USD ($) $ in Thousands	Series B Convertible Redeemable Preferred	Series E Convertible Redeemable Preferred	Series F Convertible Redeemable Preferred	Series G Convertible Redeemable Preferred	Common Stock	Treasury Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Total
Beginning, shares at Dec. 31, 2013	239,400				7,555,317	(6,704)
Beginning, amount at Dec. 31, 2013	$ 2				$ 874	$ (64)	$ 131,652	$ (830)	$ (128,303)	$ 3,331
Issuance of common stock pursuant to warrant exercises, Shares					4,742,632
Issuance of common stock pursuant to warrant exercises, Amount					$ 47		2,801			2,848
Settlement of derivative liabilities pursuant to warrants exercised for cash							57			57
Issuance of common stock pursuant to cashless warrant exercises, Shares					868,565
Issuance of common stock pursuant to cashless warrant exercises, Amount					$ 9		(9)
Warrants issued to secure line of credit borrowing facility							128			128
Issuance of common stock pursuant to option exercises, Shares					98,617
Issuance of common stock pursuant to option exercises, Amount					$ 1		66			67
Recognition of beneficial conversion feature on convertible debt							296			296
Warrants issued to consultants as compensation							53			53
Conversion of related party notes payable to common stock, shares					154,607
Conversion of related party notes payable to common stock, amount					$ 2		83			85
Stock-based compensation expense, shares					94,116
Stock-based compensation expense, amount					$ 1		855			856
Addition/reduction in minimum pension liability								(744)		(744)
Foreign currency translation adjustment								(20)		(20)
Dividends on preferred stock									(51)	(51)
Net loss									(7,940)	(7,940)
Ending, shares at Dec. 31, 2014	239,400				93,513,854	(6,704)
Ending, amount at Dec. 31, 2014	$ 2				$ 934	$ (64)	135,982	(1,594)	(136,294)	(1,034)
Issuance of Series E Convertible Redeemable Preferred Stock for cash, net of issuance costs, Shares		10,022
Issuance of Series E Convertible Redeemable Preferred Stock for cash, net of issuance costs, Amount							9,955			9,955
Conversion of related party debt into Series E Convertible Redeemable Preferred Stock, Shares		1,978
Conversion of related party debt into Series E Convertible Redeemable Preferred Stock, Amount							1,978			1,978
Issuance of Common Stock in payment of Series E Preferred dividends, Shares					478,664
Issuance of Common Stock in payment of Series E Preferred dividends, Amount					$ 5		769		(774)
Issuance of common stock pursuant to cashless warrant exercises, Shares					45,376
Issuance of common stock pursuant to cashless warrant exercises, Amount					$ 1		(1)
Issuance of common stock pursuant to option exercises, Shares					39,705
Issuance of common stock pursuant to option exercises, Amount							33			33
Recognition of beneficial conversion feature on convertible debt							146			146
Warrants modified in lieu of cash as compensation							80			80
Stock-based compensation expense, amount							96			96
Addition/reduction in minimum pension liability								332		332
Foreign currency translation adjustment								67		67
Dividends on preferred stock									(291)	(291)
Net loss									(8,534)	(8,534)
Ending, shares at Dec. 31, 2015	239,400	12,000			94,077,599	(6,704)
Ending, amount at Dec. 31, 2015	$ 2				$ 940	$ (64)	149,902	(1,195)	(145,893)	3,692
Issuance of common stock pursuant to cashless warrant exercises, Shares					144,459
Issuance of common stock pursuant to cashless warrant exercises, Amount					$ 1		(1)
Issuance of common stock pursuant to option exercises, Shares					12,626
Issuance of common stock pursuant to option exercises, Amount							3			3
Recognition of beneficial conversion feature on convertible debt							219			219
Stock-based compensation expense, amount							1,162			1,162
Addition/reduction in minimum pension liability								(347)		(347)
Foreign currency translation adjustment								(1)		(1)
Dividends on preferred stock					$ 10		1,286		(1,347)	(51)
Issuance of Series F Convertible Redeemable Preferred Stock for cash, net of issuance costs, Shares			2,000
Issuance of Series F Convertible Redeemable Preferred Stock for cash, net of issuance costs, Amount							1,979			1,979
Issuance of Series G Convertible Redeemable Preferred Stock for cash, net of issuance costs, Shares				1,625
Issuance of Series G Convertible Redeemable Preferred Stock for cash, net of issuance costs, Amount							1,614			1,614
Issuance of Series G Convertible Redeemable Preferred Stock in exchange for Common Stock, Shares				4,396	(3,383,830)
Issuance of Series G Convertible Redeemable Preferred Stock in exchange for Common Stock, Amount					$ (34)		31			(3)
Net loss					$ 0				(9,527)	(9,527)
Ending, shares at Dec. 31, 2016	239,400	12,000	2,000	6,021	91,853,499	(6,704)
Ending, amount at Dec. 31, 2016	$ 2				$ 917	$ (64)	$ 156,195	$ (1,543)	$ (156,676)	$ (1,260)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities
Net loss	$ (9,527)	$ (8,534)	$ (7,940)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization	129	164	179
Amortization of debt discounts and debt issuance costs	145	438	426
Stock-based compensation	1,162	960	856
Write down of capitalized labor inventory to net realizable value		281
Reduction in accounts payable and accrued expenses from expiration of statute of limitations	(200)		(224)
Warrants modified/issued in lieu of cash as compensation for services		80	53
Change in assets and liabilities
Accounts receivable	62	(83)	35
Inventory	23	589	(411)
Other assets	(50)	17	62
Accounts payable	227	(261)	188
Accrued expenses	94	(76)	130
Deferred revenue	(13)	(768)	165
Pension obligation	37	10	59
Total adjustments	1,616	1,351	1,518
Net cash used by operating activities	(7,911)	(7,183)	(6,422)
Cash flows from investing activities
Purchase of property and equipment	(49)	(87)	(117)
Net cash used by investing activities	(49)	(87)	(117)
Cash flows from financing activities
Proceeds from line of credit, net	2,650	400	1,550
Proceeds from exercise of stock options	3	33	67
Proceeds from issuance of preferred stock, net of issuance costs	3,593	9,955
Dividends paid to preferred stockholders	(51)	(51)	(51)
Proceeds from exercised warrants to purchase stock			2,848
Net cash provided by financing activities	6,195	10,337	4,414
Effect of exchange rate changes on cash	(1)	67	(20)
Net increase (decrease in cash)	(1,766)	3,134	(2,145)
Cash at beginning of year	3,352	218	2,363
Cash at end of year	1,586	3,352	218
Supplemental disclosure of cash flow information:
Cash paid for interest		1	2
Cash paid for income taxes			1
Summary of non-cash investing and financing activities:
Conversion of related party notes payable into common stock			85
Conversion of related party notes payable into Series E Preferred		1,978
Beneficial conversion feature of convertible debt	219	146	296
Accrued unpaid dividends on Series E Preferred		240
Stock dividend on Series E Preferred	1,228	774
Stock dividend on Series F Preferred	63	240
Stock dividend on Series G Preferred	5
Issuance of Common Stock pursuant to cashless warrant exercises	1	1	9
Exchange of Common Stock for Series G Preferred	34
Reduction (increase in additional minimum pension liability)	(347)	332	(744)
Reclassification of warrants previously classified as derivative liabilities to additional paid-in capital			57
Issuance of common warrants securing line of credit borrowing facility			128
Issuance of restricted stock pursuant to achievement of vesting conditions			$ 1

XML 20 R8.htm IDEA: XBRL DOCUMENT

DESCRIPTION OF BUSINESS AND OPERATIONS

12 Months Ended

Dec. 31, 2016

DESCRIPTION OF BUSINESS AND OPERATIONS

Overview

Recent Developments

Creation of Series G Convertible Redeemable Preferred Stock and Series G Financing

On December 27, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series G Convertible Preferred Stock with the Delaware Division of Corporations, designating 6,120 shares of the Company’s preferred stock, par value $0.01 per share, as Series G Convertible Redeemable Preferred Stock (“Series G Preferred”). Shares of Series G Preferred rank junior to the Company’s Series B Convertible Redeemable Preferred Stock, Series E Convertible Redeemable Preferred Stock, Series F Convertible Redeemable Preferred Stock as well as the Company’s existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Company’s common stock, par value $0.01 per share (“Common Stock”). Each share of Series G Preferred has a liquidation preference of $1,000 per share (“Series G Liquidation Preference”), and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Series G Liquidation Preference, divided by $1.50.

On December 29, 2016, the Company accepted subscription forms from certain accredited investors (the “Investors”) to purchase a total of 1,625 shares of Series G Preferred for $1,000 per share (the “Series G Financing”), resulting in gross proceeds to the Company of $1,625,000 net of issuance costs of approximately $11,000. In addition, the Company also received executed exchange agreements from the Investors pursuant to which the Company exchanged an aggregate total of approximately 3.4 million shares of Common Stock held by the Investors for an aggregate total of approximately 4,400 shares of Series G Preferred.

Creation of Series F Convertible Redeemable Preferred Stock and Series F Financing

On September 2, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series F Convertible Preferred Stock with the Delaware Division of Corporations, designating 2,000 shares of its preferred stock as Series F Convertible Redeemable Preferred Stock (“Series F Preferred”). Shares of Series F Preferred rank junior to the Company’s Series B Convertible Redeemable Preferred Stock, Series E Convertible Redeemable Preferred Stock and existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Company’s Common Stock. Each share of Series F Preferred has a liquidation preference of $1,000 per share (“Series F Liquidation Preference”), and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Series F Liquidation Preference, divided by $1.50.

On September 7, 2016, the Company and Cap 1 LLC (the “Investor”), entered into a securities purchase agreement, wherein the Investor agreed to purchase 2,000 shares of Series F Preferred for $1,000 per share (the “Series F Financing”), resulting in gross proceeds to the Company of $2.0 million net of issuance costs of approximately $21,000.

Amendments to Lines of Credit

On December 27, 2016, in connection with the consummation of the Series G Financing, the Company and Neal Goldman, a member of the Company’s Board of Directors (the “Holder”), agreed to enter into the fifth amendment (the “Line of Credit Amendment”) to the convertible promissory note previously issued by the Company to the Holder on March 27, 2013 (the “Goldman Line of Credit”), to provide the Company with the ability to borrow up to $5.5 million under the terms of the Goldman Line of Credit, bringing the total amount the Company may borrow under its existing lines of credit to $6.0 million. In addition, the Maturity Date, as defined in the Goldman Line of Credit, was amended to be December 31, 2017. The Line of Credit Amendment was executed on January 23, 2017.

In addition, on January 23, 2017, the Company and Charles Crocker, also a member of the Board of Directors of the Company, amended the line of credit and promissory note, dated March 9, 2016 (the “Crocker LOC”), to extend the maturity date thereof to December 31, 2017. No other amendments were made to the Crocker LOC.

Key Product Introduction

●	Mobile-workforce friendly—With GoVerifyID Enterprise Suite user authentication logins are possible for a tablet or laptop even when disconnected from the corporate network. Additionally, GoVerifyID Enterprise offers a consistent user authentication experience across all login environments.

●

Liquidity, Going Concern and Management’s Plan

Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt, including our Lines of Credit (defined above). Our principal uses of cash have included cash used in operations, product development, payments relating to purchases of property and equipment and repayments of borrowings. We expect that our principal uses of cash in the future will be for product development including customization of identity management products for enterprise and consumer applications, further development of intellectual property, development of Software-as-a-Service (“SaaS”) capabilities for existing products as well as general working capital and capital expenditure requirements. Management expects that, as our revenues grow, our sales and marketing and research and development expenses will continue to grow, albeit at a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Operating Cycle

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for doubtful accounts receivable, inventory carrying values, deferred tax asset valuation allowances, accounting for loss contingencies, recoverability of goodwill and acquired intangible assets and amortization periods, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, revenue and cost of revenues recognized under the percentage of completion method and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates.

Accounts Receivable

Inventories

Finished goods inventories are stated at the lower of cost, determined using the average cost method, or market. See Note 6.

Property, Equipment and Leasehold Improvements

Fair Value of Financial Instruments

Revenue Recognition

The Company recognizes revenue from the following major revenue sources:

●	Long-term fixed-price contracts involving significant customization;

●	Fixed-price contracts involving minimal customization;

●	Software licensing;

●	Sales of computer hardware and identification media; and

●	Post-contract customer support (“ PCS”).

The Company’s revenue recognition policies are consistent with U.S. GAAP including the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition”, ASC 605-35 “Revenue Recognition, Construction-Type and Production-Type Contracts”, “Securities and Exchange Commission Staff Accounting Bulletin 104”, and ASC 605-25 “Revenue Recognition, Multiple Element Arrangements”. Accordingly, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured.

The Company recognizes revenue and profit as work progresses on long-term, fixed-price contracts involving significant amount of hardware and software customization using the percentage of completion method based on costs incurred to date compared to total estimated costs at completion. The primary components of costs incurred are third party software and direct labor cost including fringe benefits. Revenues recognized in excess of amounts billed are classified as current assets under “Costs and estimated earnings in excess of billings on uncompleted contracts”. Amounts billed to customers in excess of revenues recognized are classified as current liabilities under “Billings in excess of costs and estimated earnings on uncompleted contracts”. Revenue from contracts for which the Company cannot reliably estimate total costs or there are not significant amounts of customization are recognized upon completion. For contracts that require significant amounts of customization that the Company accounts for under the completed contract method of revenue recognition, the Company defers revenue recognition until customer acceptance is received. For contracts containing either extended or dependent payment terms, revenue recognition is deferred until such time as payment has been received by the Company. The Company also generates non-recurring revenue from the licensing of its software. Software license revenue is recognized upon the execution of a license agreement, upon deliverance, when fees are fixed and determinable, when collectability is probable, when all other significant obligations have been fulfilled and the Company has obtained vendor specific objective evidence (“VSOE”) of the fair value of the undelivered element. VSOE of fair value for customer support services is determined by reference to the price the customer pays for such element when sold separately; that is, the renewal rate offered to customers. In those instances when objective and reliable evidence of fair value exists for the undelivered items but not for the delivered items, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of arrangement consideration allocated to the delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items. The Company also generates revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer. The Company’s revenue from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant obligations remain and collectability of the related receivable is probable. Pricing of maintenance contracts is consistent period to period and calculated as a percentage of the software or hardware revenue. Amounts collected in advance for maintenance services are included in current liabilities under "Deferred revenue". Sales tax collected from customers is excluded from revenue.

Goodwill

The Company accounts for its intangible assets under the provisions of ASC 350, “Intangibles - Goodwill and Other”. In accordance with ASC 350, intangible assets with a definite life are analyzed for impairment under ASC 360-10-05 “Property, Plant and Equipment” and intangible assets with an indefinite life are analyzed for impairment under ASC 360 annually, or more often if circumstances dictate. The Company performs its annual goodwill impairment test in the fourth quarter of each year, or if required, at the end of each fiscal quarter. In accordance with ASC 350, goodwill, or the excess of cost over fair value of net assets acquired is tested for impairment using a fair value approach at the “reporting unit” level. A reporting unit is the operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Company’s reporting unit is at the entity level. The Company recognizes an impairment charge for any amount by which the carrying amount of a reporting unit’s goodwill exceeds its fair value. The Company uses fair value methodologies to establish fair values.

The Company did not record any goodwill impairment charges for the years ended December 31, 2016, 2015 or 2014.

Intangible and Long Lived Assets

Concentration of Credit Risk

Stock-Based Compensation

The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, “Compensation – Stock Compensation”. The fair value of stock options granted is recognized to expense over the requisite service period. Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Stock-based compensation expense is reported in operating expenses based upon the departments to which substantially all of the associated employees report and credited to additional paid-in-capital. Stock-based compensation expense related to equity options was approximately $1,162,000, $744,000 and $618,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Restricted stock units are recorded at the grant date fair value with corresponding compensation expense recorded ratably over the requisite service period.

Income Taxes

Foreign Currency Translation

Comprehensive Loss

Comprehensive loss consists of net gains and losses affecting shareholders’ equity that, under generally accepted accounting principles, are excluded from net loss. For the Company, the only items are the cumulative translation adjustment and the additional minimum liability related to the Company’s defined benefit pension plan, recognized pursuant to ASC 715-30, "Compensation - Retirement Benefits - Defined Benefit Plans – Pension".

Advertising Costs

Loss Per Share

(Amounts in thousands, except share and per share amounts)
	Year Ended December 31,
Numerator for basic and diluted loss per share:	2016			2015			2014
Net loss	$	(9,527	)	$	(8,534	)	$	(7,940	)
Preferred dividends		(1,347	)		(1,065	)		(51	)
Net loss available to common shareholders	$	(10,874	)	$	(9,599	)	$	(7,991	)

Denominator for basic loss per share — weighted-average shares outstanding		94,426,783			93,786,079			91,795,971
Effect of dilutive securities		—			—			—
Denominator for diluted loss per share — weighted-average shares outstanding		94,426,783			93,786,079			91,795,971

Basic and diluted loss per share:
Net loss	$	(0.10	)	$	(0.09	)	$	(0.09	)
Preferred dividends		(0.02	)		(0.01	)		(—	)
Net loss available to common shareholders	$	(0.12	)	$	(0.10	)	$	(0.09	)

The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as their effect would have been antidilutive:

Potential Dilutive Securities:	Common Share Equivalents at December 31, 2016		Common Share Equivalents at December 31, 2015		Common Share Equivalents at December 31, 2014
Convertible lines of credit		2,201,903		—		1,649,548
Convertible redeemable preferred stock – Series B		46,029		46,029		46,029
Convertible redeemable preferred stock – Series E		6,315,789		6,442,105		—
Convertible redeemable preferred stock – Series F		1,333,333		—		—
Convertible redeemable preferred stock – Series G		4,014,000		—		—
Stock options		6,506,843		5,376,969		4,057,296
Warrants		175,000		450,000		977,778
Total Potential Dilutive Securities		20,592,897		12,315,103		6,730,651

Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”), or other standard setting bodies, which are adopted by us as of the specified effective date. Unless otherwise discussed, the Company’s management believes the impact of recently issued standards not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.

FASB ASU No. 2014-09. In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB finalized a one-year deferral of the effective date of the new standard. For public entities, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Calendar year-end public companies are therefore required to apply the revenue guidance beginning in their 2018 interim and annual financial statements. The standard permits the use of either the retrospective or cumulative effect transition method. We currently anticipate adopting the standard using the cumulative effect transition method during the first fiscal quarter in 2018.

FASB ASU No. 2014-15. In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU No. 2014-15 became effective in the fourth quarter of 2016. The adoption of ASU No. 2014-15 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2015-03. In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. The standard became effective for the Company beginning January 1, 2016. The adoption of ASU No. 2015-03 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2015-11. In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory”. The amendments in ASU No. 2015-11 require an entity of measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. For public business entities, the amendments in ASU No. 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2016-01. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall - Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in this ASU address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and apply to all entities that hold financial assets or owe financial liabilities. The amendments in this ASU also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. That impairment assessment is similar to the qualitative assessment for long-lived assets, goodwill, and indefinite-lived intangible assets. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with earlier application permitted for financial statements that have not been issued. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2018 and are currently evaluating the impact the adoption of this new accounting standard will have on our consolidated financial statements.

FASB ASU No. 2016-02. In February 2016, the FASB issued ASU No. 2016-02, “Leases”. This guidance will result in key changes to lease accounting and will aim to bring leases onto balance sheets to give investors, lenders, and other financial statement users a more comprehensive view of a company's long-term financial obligations as well as the assets it owns versus leases. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and anticipates commencement of adoption planning in the fourth fiscal quarter of 2018.

FASB ASU No. 2016-06. In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815) – Contingent Put and Call Options in Debt Instruments (“ASU 2016-06”), which will reduce diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature of an exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The adoption of ASU No. 2016-06 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2016-08. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)(“ASU 2016-08”). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

FASB ASU No. 2016-09. In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. The adoption ASU No. 2016-09 did not have a significant impact on our consolidated financial statements.

FASB ASU No. 2016-10. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”). ASU 2016-10 provides further implementation guidance on identifying performance obligations and also improves the operability and understandability of the licensing implementation guidance. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

FASB ASU No. 2016-13. In June 2016, the FASB issued Accounting Standard Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. This guidance is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.

FASB ASU No. 2016-15. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. This guidance is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

FASB ASU No. 2017-04. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments of this ASU eliminate step 2 from the goodwill impairment test. The annual, or interim test is performed by comparing the fair value of a reporting unit with its carrying amount. The amendments of this ASU also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and if it fails that qualitative test, to perform step 2 of the goodwill impairment test. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.

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FAIR VALUE ACCOUNTING

12 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE ACCOUNTING

The Company accounts for fair value measurements in accordance with ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

	Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

	Level 2	Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

	Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

	Fair Value at December 31, 2016
($ in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Pension assets	$	1,645	$	1,645	$	—	$	—
Totals	$	1,645	$	1,645	$	—	$	—

	Fair Value at December 31, 2015
($ in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Pension assets	$	1,557	$	1,557	$	—	$	—
Totals	$	1,557	$	1,557	$	—	$	—

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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INTANGIBLE ASSETS AND GOODWILL

12 Months Ended

Dec. 31, 2016

INTANGIBLE ASSETS AND GOODWILL

The Company has intangible assets in the form of trademarks, trade names and patents. The carrying amount of the Company’s acquired trademarks and trade names was $0 as of December 31, 2016 and 2015, respectively, which include accumulated amortization of $347,000 as of December 31, 2016 and 2015. Amortization expense related to trademarks and tradenames was $0, $15,000 and $15,000 for the years ended December 31, 2016, 2015 and 2014, respectively. All intangible assets are amortized over their estimated useful lives with no estimated residual values. Any costs incurred by the Company to renew or extend the life of intangible assets will be evaluated under ASC No. 350, Intangibles – Goodwill and Other, for proper treatment.

The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment. The Company performs its annual impairment test in the fourth quarter of each year. A two-step impairment test is used to first identify potential goodwill impairment and then measure the amount of goodwill impairment loss, if any. The first step was conducted by determining and comparing the fair value, employing the market approach, of the Company’s reporting unit to the carrying value of the reporting unit. The Company continues to have only one reporting unit, Identity Management. Based on the results of this impairment test, the Company determined that its goodwill was not impaired during the years ended December 31, 2016, 2015 and 2014.

The estimated acquired intangible amortization expense for the next five fiscal years is as follows:

Fiscal Year Ended December 31,	Estimated Amortization Expense ($ in thousands)
2017	$	12
2018		12
2019		12
2020		12
2021		12
Thereafter		45
Totals	$	105

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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RELATED PARTIES

12 Months Ended

Dec. 31, 2016

RELATED PARTIES

Related Party Convertible Notes

On November 14, 2008, the Company entered into a series of convertible promissory notes (the “Related-Party Convertible Notes”), aggregating $110,000 with certain officers and members of the Company’s Board of Directors, including S. James Miller, the Company’s Chief Executive Officer and Chairman. The Related-Party Convertible Notes bear interest at 7.0% per annum and were originally due February 14, 2009. In conjunction with the original issuance of the Related-Party Convertible Notes in 2008, the Company issued an aggregate of 149,996 warrants to the note holders to purchase shares of Common Stock of the Company. The warrants have an exercise price $0.50 per share and may be exercised at any time from November 14, 2008 until November 14, 2013. No warrants to purchase shares of Common Stock were outstanding and exercisable as of December 31, 2015, and no warrants were issued and outstanding as of December 31, 2015.

Lines of Credit

In March 2013, the Company and Holder entered into the Goldman Line of Credit with available borrowings of up to $2.5 million. In March 2014, the Goldman Line of Credit’s borrowing was increased to an aggregate total of $3.5 million (the “Amendment”). Pursuant to the terms and conditions of the Amendment, the Holder had the right to convert up to $2.5 million of the outstanding balance of the Goldman Line of Credit into shares of the Company's Common Stock for $0.95 per share. Any remaining outstanding balance was convertible into shares of the Company's Common Stock for $2.25 per share.

As consideration for the initial Goldman Line of Credit, the Company issued a warrant to the Holder, exercisable for 1,052,632 shares of the Company’s Common Stock (the "Line of Credit Warrant"). The Goldman Line of Credit Warrant had a term of two years from the date of issuance and an exercise price of $0.95 per share. As consideration for entering into the Amendment, the Company issued to the Holder a second warrant, exercisable for 177,778 shares of the Company’s Common Stock (the “Amendment Warrant”). The Amendment Warrant expired on March 27, 2015 and had an exercise price of $2.25 per share.

In April 2014, the Company and the Holder entered into a further amendment to the Goldman Line of Credit to decrease the available borrowings to $3.0 million (the “Second Amendment”). Contemporaneous with the execution of the Second Amendment, the Company entered into a new unsecured line of credit with the Second Holder with available borrowings of up to $500,000 (the “Crocker LOC”), which amount was convertible into shares of the Company’s Common Stock for $2.25 per share. As a result of these amendments, total available borrowings under the Lines of Credit available to the Company remained unchanged at a total of $3.5 million. In connection with the Second Amendment, the Holder assigned and transferred to the Second Holder one-half of the Amendment Warrant.

In December 2014, the Company and the Holder entered into a further amendment to the Goldman Line of Credit to increase the available borrowing to $5.0 million and extend the maturity date of the Goldman Line of Credit to March 27, 2017 (the “Third Amendment”). Also, as a result of the Third Amendment, the Holder had the right to convert up to $2.5 million outstanding principal, plus any accrued but unpaid interest (“Outstanding Balance”) into shares of the Company’s Common Stock for $0.95 per share, the next $500,000 Outstanding Balance into shares of Common Stock for $2.25 per share and any remaining outstanding balance thereafter into shares of Common Stock for $2.30 per share. The Third Amendment also modified the definition of a “Qualified Financing” to mean a debt or equity financing resulting in gross proceeds to the Company of at least $5.0 million.

In February 2015, as a result of the Series E Financing, the Company issued 1,978 shares of Series E Preferred to the Holder to satisfy $1,950,000 in principal borrowings under the Goldman Line of Credit plus approximately $28,000 in accrued interest. As a result of the Series E Financing, the Company’s borrowing capacity under the Goldman Line of Credit was reduced to $3,050,000 with the maturity date unchanged and the $500K Line of Credit was terminated in accordance with its terms.

In March 2016, the Company and the Holder entered into a fourth amendment to the Goldman Line of Credit (the “Fourth Amendment”) solely to (i) increase available borrowings to $5.0 million; (ii) extend the maturity date to June 30, 2017, and (iii) provide for the conversion of the outstanding balance due under the terms of the Goldman Line of Credit into that number of fully paid and non-assessable shares of the Company’s Common Stock as is equal to the quotient obtained by dividing the outstanding balance by $1.25.

On December 27, 2016, in connection with the consummation of the Series G Financing, the Company and Holder agreed to enter into the Fifth Amendment (the “Line of Credit Amendment”) to the Goldman Line of Credit to provide the Company with the ability to borrow up to $5.5 million under the terms of the Goldman Line of Credit. In addition, the Maturity Date, as defined in the Goldman Line of Credit was amended to be December 31, 2017. The Line of Credit Amendment was executed on January 23, 2017.

The following table sets forth the Company’s activity under its Lines of Credit for the periods indicated:

Balance outstanding under Lines of Credit as of December 31, 2014	$	1,550
Borrowing under Lines of Credit		750
Repayments		(350	)
Exchange of Indebtedness for Series E Preferred Stock		(1,950	)
Balance outstanding under Lines of Credit as of December 31, 2015	$	—
Borrowings under Lines of Credit		2,650
Repayments		—
Balance outstanding under Lines of Credit as of December 31, 2016	$	2,650

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INVENTORY

12 Months Ended

Dec. 31, 2016

INVENTORY

Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value and required reserve levels.

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PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2016

PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2016 and 2015, consists of:

($ in thousands)	2016			2015

Equipment	$	935		$	887
Leasehold improvements		11			11
Furniture		101			101
		1,047			999
Less accumulated depreciation		(954	)		(837	)
	$	93		$	162

Total depreciation expense for the years ended December 31, 2016, 2015 and 2014 was approximately $117,000, $137,000 and $152,000, respectively.

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ACCRUED EXPENSES

12 Months Ended

Dec. 31, 2016

ACCRUED EXPENSES

Principal components of accrued expenses consist of:

($ in thousands)	December 31, 2016		December 31, 2015

Compensated absences	$	313	$	260
Wages, payroll taxes and sales commissions		28		11
Customer deposits		198		69
Liquidated damages		—		200
Royalties		147		147
Pension and employee benefit plans		7		6
Income and sales taxes		161		131
Dividends		27		261
Interest payable to related parties		102		—
Other		64		64
	$	1,047	$	1,149

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LINES OF CREDIT

12 Months Ended

Dec. 31, 2016

Line of Credit Facility [Abstract]

LINES OF CREDIT

Outstanding lines of credit consist of the following:

($ in thousands)	December 31, 2016			December 31, 2015
Lines of Credit
8% convertible lines of credit. Face value of advances under lines of credit $2,650 at December 31, 2016 and $0 at December 31, 2015, respectively. Discount on advances under lines of credit is $122 at December 31, 2016 and $0 at December 31, 2015, respectively. Maturity date is December 31, 2017.	$	2,528		$	—

Total lines of credit to related parties		2,528			—
Less current portion		(2,528	)		—
Long-term lines of credit to related parties	$	—		$	—

Lines of Credit

For a more detailed discussion of the Company’s Lines of Credit, see Note 5 Related Parties.

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INCOME TAXES

12 Months Ended

Dec. 31, 2016

INCOME TAXES

10. INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, (ASC 740). Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established when necessary based on the weight of available evidence, if it is considered more likely than not that all or some portion of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities. The Company has established a valuation allowance against its deferred tax asset due to the uncertainty surrounding the realization of such asset.

The significant components of the income tax provision are as follows:

($ in thousands)	Year Ended December 31,
Current	2016		2015		2014
Federal	$	—	$	—	$	—
State		—		—		—
Foreign		21		22		25

Deferred
Federal		—		—		—
State		—		—		—
Foreign		—		—		—

	$	21	$	22	$	25

The principal components of the Company’s deferred tax assets at December 31, 2016, 2015 and 2014 are as follows:

($ in thousands)	2016			2015			2014

Net operating loss carryforwards	$	17,829		$	15,948		$	14,200
Intangible and fixed assets		102			220			427
Stock based compensation		2,324			1,861			1,565
Reserves and accrued expenses		8			8			6
Other		—			—			(85	)
		20,263			18,037			16,113
Less valuation allowance		(20,263	)		(18,037	)		(16,113	)

Net deferred tax assets	$	—		$	—		$	—

A reconciliation of the provision for income taxes to the amount computed by applying the statutory income tax rates to loss before income taxes is as follows:

	2016				2015			2014

Amounts computed at statutory rates		$	(3,239	)	$	(2,902	)	$	(2,699	)
State income tax, net of federal benefit			(462	)		(262	)		(212	)
Expiration of net operating loss carryforwards			1,082			695			708
Non-deductible interest			49			149			145
Foreign taxes			362			413			386
Other			3			5			4
Net change in valuation allowance on deferred tax assets			2,226			1,924			1,693

		$	21		$	22		$	25

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

The Internal Revenue Code (the "Code") limits the availability of certain tax credits and net operating losses that arose prior to certain cumulative changes in a corporation’s ownership resulting in a change of control of the Company. The Company’s use of its net operating loss carryforwards and tax credit carryforwards will be significantly limited because the Company believes it underwent “ownership changes”, as defined under Section 382 of the Internal Revenue Code, in 1991, 1995, 2000, 2003, 2004, 2011 and 2012, though the Company has not performed a study to determine the limitation. The Company has reduced its deferred tax assets to zero relating to its federal and state research credits because of such limitations. The Company continues to disclose the tax effect of the net operating loss carryforwards at their original amount in the table above as the actual limitation has not yet been quantified. The Company has also established a full valuation allowance for substantially all deferred tax assets due to uncertainties surrounding its ability to generate future taxable income to realize these assets. Since substantially all deferred tax assets are fully reserved, future changes in tax benefits will not impact the effective tax rate. Management periodically evaluates the recoverability of the deferred tax assets. If it is determined at some time in the future that it is more likely than not that deferred tax assets will be realized, the valuation allowance would be reduced accordingly at that time.

Tax returns for the years 2012 through 2016 are subject to examination by taxing authorities.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2016

COMMITMENTS AND CONTINGENCIES

Employment Agreements

Under the terms of the employment agreements with our Senior Vice President of Administration and Chief Financial Officer, this executive will be entitled to the following severance benefits if we terminate their employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to six month’s of base salary; (ii) continuation of their fringe benefits and medical insurance for a period of six months; (iii) immediate vesting of 50% of their outstanding stock options and restricted stock awards. In the event that their employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), they are entitled to the severance benefits described above, except that 100% of their outstanding stock options and restricted stock awards will immediately vest.

Litigation

Leases

●

●	8,045 square feet in Portland, Oregon, at a cost of approximately $16,000 per month until the expiration of the lease on October 31, 2018; and

●	304 square feet of office space in Mexico City, Mexico, at a cost of approximately $3,000 per month until November 30, 2017.

At December 31, 2016, future minimum lease payments are as follows:

($ in thousands)
2017	$	450
2018		201
2019		34
2020		34
2021		9
Total	$	728

Rental expense incurred under operating leases for the years ended December 31, 2016, 2015 and 2014 was approximately $492,000, $477,000 and $430,000, respectively.

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EQUITY

12 Months Ended

Dec. 31, 2016

EQUITY

Series B Convertible Redeemable Preferred Stock

The Company had 239,400 shares of Series B Convertible Redeemable Preferred Stock (“Series B Preferred”) outstanding as of December 31, 2016 and 2015. At December 31, 2016 and 2015, the Company had cumulative undeclared dividends of approximately $8,000 ($0.03 per share). There were no conversions of Series B Preferred into Common Stock during the years ended December 31, 2016, 2015 and 2014. The Company paid dividends of approximately $51,000 to the holders of our Series B Preferred in 2016,2015 and 2014.

Series E Convertible Redeemable Preferred Stock

Any time after the six-month period following the issuance date, the Company may redeem all or a portion of the Series E Preferred outstanding upon thirty (30) calendar day’s prior written notice (the “Company's Redemption Notice”) in cash at a price per share of Series E Preferred equal to 110% of the liquidation preference amount plus all accrued and unpaid dividends. Also, simultaneous with the occurrence of a change of control transaction, the Company, at its option, shall have the right to redeem all or a portion of the outstanding Series E Preferred in cash at a price per share of Series E Preferred equal to 110% of the liquidation preference amount plus all accrued and unpaid dividends.

On December 29, 2016, the Company filed Amendment No. 1 to the Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock (the “Series E Amendment”) with the Delaware Division of Corporations. The Series E Amendment made the following changes to the Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock: (i) the Company may only make dividend payments in cash received from positive cash flow from operations; (ii) beginning on July 1, 2017, in the event the Company pays accrued dividend payments in shares of Common Stock for more than four consecutive quarterly periods, holders of shares of Series E Preferred will have the right to immediately appoint two designees to the Company’s Board of Directors (the “ Director Appointment Provision ”); (iii) dividend payments incurred on December 31, 2016 and March 31, 2017 may be paid in shares of Common Stock, without triggering the Director Appointment Provision; and (iv) the term Permitted Indebtedness (as defined in the Series E Certificate of Designations) was revised to cover permitted borrowings of up to $6.0 million.

Series F Convertible Redeemable Preferred Stock

In September 2016, we filed the Certificate of Designations, Preferences, and Rights of the Series F Convertible Preferred Stock (the “Certificate of Designations”) with the Delaware Division of Corporations, designating 2,000 shares of our preferred stock as Series F Convertible Redeemable Preferred Stock (“Series F Preferred”). Shares of Series F Preferred rank junior to shares of Series B Preferred and Series E Preferred, as well as our existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of Common Stock.

Each share of Series F Preferred has a liquidation preference of $1,000 per share (“Liquidation Preference”), and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Series F Liquidation Preference, divided by $1.50 (the “Series F Conversion Shares”).

In September 2016, the Company offered and sold 2,000 shares of Series F Preferred for $1,000 per share (the “Series F Financing”), resulting in gross proceeds to the Company of $2,000,000 net of issuance costs of approximately $21,000.

Series G Convertible Redeemable Preferred Stock

In December, 2016, the Company filed the Certificate of Designations, Preferences, and Rights of the Series G Convertible Preferred Stock with the Delaware Division of Corporations, designating 6,120 shares of the Company’s preferred stock, par value $0.01 per share, as Series G Convertible Preferred Stock (“Series G Preferred”). Shares of Series G Preferred rank junior to the Company’s Series B Preferred, Series E Preferred, Series F Preferred as well as the Company’s existing indebtedness, and accrue dividends at a rate of 10% per annum, payable on a quarterly basis in shares of the Company’s common stock, par value $0.01 per share. Each share of Series G Preferred has a liquidation preference of $1,000 per share (“Series G Liquidation Preference”), and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Series G Liquidation Preference, divided by $1.50.

On December 29, 2016, the Company accepted subscription forms from certain accredited investors to purchase a total of 1,625 shares of Series G Preferred for $1,000 per share (the “Series G Financing”), resulting in gross proceeds to the Company of $1,625,000, net of issuance cost of approximately $11,000. In addition, the Company also received executed exchange agreements from the Investors pursuant to which the Company exchanged an aggregate total of 3,383,830 shares of common stock held by the Investors for an aggregate total of 4,396 shares of Series G Preferred.

Common Stock

The following table summarizes outstanding Common Stock activity for the following periods:

	Common Stock

Shares outstanding at December 31, 2013		87,548,613
Shares issued pursuant to warrants exercised for cash		4,742,632
Shares issued pursuant to cashless warrants exercised		868,565
Conversion of related-party notes payable into Common Stock		154,607
Shares issued as compensation in lieu of cash		94,116
Shares issued pursuant to option exercises		98,617
Shares outstanding at December 31, 2014		93,507,150
Shares issued pursuant to payment of stock dividend on Series E Preferred		478,664
Shares issued pursuant to cashless warrants exercised		45,376
Shares issued pursuant to option exercises		39,705
Shares outstanding at December 31, 2015		94,070,895
Shares issued pursuant to payment of stock dividend on Series E Preferred		950,362
Shares issued pursuant to payment of stock dividend on Series F Preferred		48,513
Shares issued pursuant to payment of stock dividend on Series G Preferred		3,770
Shares issued pursuant to cashless warrants exercised		144,459
Shares issued pursuant to option exercises		12,626
Exchange of common shares for Series G Preferred		(3,383,830	)
Shares outstanding at December 31, 2016		91,846,795

Warrants

The following table summarizes warrant activity for the following periods:

	Warrants			Weighted- Average Exercise Price

Balance at December 31, 2013		6,598,416		$	0.63
Granted		302,778		$	2.02
Expired / Canceled		(55,000	)	$	1.10
Exercised		(5,868,416	)	$	0.58
Balance at December 31, 2014		977,778		$	1.22
Granted		—		$	0.00
Expired / Canceled		(419,444	)	$	1.86
Exercised		(108,334	)	$	1.01
Balance at December 31, 2015		450,000		$	0.67
Exercised		(275,000	)
Balance at December 31, 2016		175,000

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

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Reference 14: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=6521494

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+ Details

XML 32 R20.htm IDEA: XBRL DOCUMENT

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2016

STOCK-BASED COMPENSATION

Stock Options

As of December 31, 2016, the Company had one active stock-based compensation plan: the 1999 Stock Option Plan (the “1999 Plan”).

1999 Plan

The 1999 Plan was adopted by the Company’s Board of Directors on December 17, 1999. Under the terms of the 1999 Plan, the Company could, originally, issue up to 350,000 non-qualified or incentive stock options to purchase Common Stock of the Company. During the year ended December 31, 2014, the Company subsequently amended and restated the 1999 Plan whereby it increased the share reserve for issuance to approximately 7.0 million shares of the Company’s Common Stock. The 1999 Plan prohibits the grant of stock option or stock appreciation right awards with an exercise price less than fair market value of Common Stock on the date of grant. The 1999 Plan also generally prohibits the “re-pricing” of stock options or stock appreciation rights, although awards may be bought-out for a payment in cash or the Company’s stock. The 1999 Plan permits the grant of stock based awards other than stock options, including the grant of “full value” awards such as restricted stock, stock units and performance shares. The 1999 Plan permits the qualification of awards under the plan (payable in either stock or cash) as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code. The number of options issued and outstanding and the number of options remaining available for future issuance are shown in the table below. On July 1, 2014, the Company began soliciting written consents from its shareholders to approve an amendment to the Company’s 1999 Stock Option Plan to increase the number of shares authorized for issuance thereunder from approximately 4.0 million to approximately 7.0 million (the “Amendment”). As of July 21, 2014, the Company had received written consents approving the Amendment from over 50% of the Company’s stockholders. As such, the Amendment was approved. The number of authorized shares available under the plan for issuance at December 31, 2016 was 6,562,781. The number of available shares under the plan for issuance at December 31, 2016 was 55,938.

A summary of the activity under the Company’s stock option plans is as follows:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Balance at December 31, 2013		3,783,411		$	0.94		7.4
Granted		435,000		$	2.13		—
Expired/Cancelled		(62,498	)	$	1.96		—
Exercised		(98,617	)	$	0.68		—

Balance at December 31, 2014		4,057,296		$	1.06		6.8
Granted		2,110,000		$	1.63		—
Expired/Cancelled		(750,622	)	$	1.86		—
Exercised		(39,705	)	$	0.87		—

Balance at December 31, 2015		5,376,969		$	1.17		6.9
Granted		1,264,000			1.34		-
Expired/Cancelled		(121,500	)		1.29		-
Exercised		(12,626	)		0.21		-
Balance at December 31, 2016		6,506,843		$	1.21		6.6

At December 31, 2016, a total of 6,506,843 options were outstanding of which 4,366,374 were exercisable at a weighted average price of $1.08 per share with a remaining weighted average contractual term of approximately 6.8 years. The Company expects that, in addition to the 4,366,374 options that were exercisable as of December 31, 2016, another 2,140,469 will ultimately vest resulting in a combined total of 6,506,843. Those 6,506,843 shares have a weighted average exercise price of $1.08 and an aggregate intrinsic value of approximately $1,744,000 as of December 31, 2016. Stock-based compensation expense related to equity options was approximately $1,162,000, $744,000 and $618,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

In September 2016, the Company issued an aggregate of 168,000 options to purchase shares of the Company’s Common Stock to certain members of the Company’s Board of Directors in return for their service from January 1, 2017 through December 31, 2017. Such options will vest at the rate of 12,000 options per month on the last day of each month during the 2017 year. The options have an exercise price of $1.37 per share and a term of 10 years. The Company will begin recognition of compensation based on the grant-date fair value ratably over the 2017 requisite service period.

Restricted Stock Awards

There were no restricted stock awards issued during the years ended December 31, 2016 and 2015.

Stock-based Compensation

Stock-based compensation related to equity options and restricted stock has been classified as follows in the accompanying consolidated statements of operations (in thousands):

	Year Ended December 31,
	2016		2015		2014
Cost of revenues	$	20	$	15	$	12
General and administrative		714		618		572
Sales and marketing		224		171		142
Research and development		204		156		130

Total	$	1,162	$	960	$	856

Common Stock Reserved for Future Issuance

The following table summarizes the Common Stock reserved for future issuance as of December 31, 2016:

	Common Stock

Convertible preferred stock – Series B, Series E, Series F and Series G		11,709,151
Convertible lines of credit		2,201,903
Stock options outstanding		6,506,843
Warrants outstanding		175,000
Authorized for future grant under stock option plans		55,938
		20,648,835

XML 33 R21.htm IDEA: XBRL DOCUMENT

EMPLOYEE BENEFIT PLAN

12 Months Ended

Dec. 31, 2016

EMPLOYEE BENEFIT PLAN

During 1995, the Company adopted a defined contribution 401(k) retirement plan (the “Plan”). All U.S. based employees aged 21 years and older are eligible to become participants after the completion of 60 day’s employment. The Plan provides for annual contributions by the Company of 50% of employee contributions not to exceed 8% of employee compensation. Effective April 1, 2009, the Plan was amended to provide for Company contributions on a discretionary basis. Participants may contribute up to 100% of the annual contribution limitations determined by the Internal Revenue Service.

XML 34 R22.htm IDEA: XBRL DOCUMENT

PENSION PLAN

12 Months Ended

Dec. 31, 2016

PENSION PLAN

($ in thousands)	2016			2015			2014
Change in benefit obligation:
Benefit obligation at beginning of year	$	3,068		$	3,488		$	2,821
Service cost		—			—			—
Interest cost		75			70			106
Actuarial (gain) loss		542			(123	)		1,003
Effect of exchange rate changes		(114	)		(356	)		(442	)
Effect of curtailment		—			—			—
Benefits paid		(31	)		(11	)		—
Benefit obligation at end of year		3,540			3,068			3,488

Change in plan assets:
Fair value of plan assets at beginning of year		1,557			1,654			1,790
Actual return of plan assets		142			40			47
Company contributions		28			34			43
Benefits paid		(31	)		—			—
Effect of exchange rate changes		(51	)		(171	)		(226	)
Fair value of plan assets at end of year		1,645			1,557			1,654
Funded status		(1,895	)		(1,511	)		(1,834	)
Unrecognized actuarial loss (gain)		1,831			1,413			1,911
Unrecognized prior service (benefit) cost		—			—			—
Additional minimum liability		(1,831	)		(1,413	)		(1,911	)
Unrecognized transition (asset) liability		—			—			—
Net amount recognized	$	(1,895	)	$	(1,511	)	$	(1,834	)

Plan Assets
Pension plan assets were comprised of the following asset categories at December 31,
Equity securities		5.7	%		5.0	%		6.4	%
Debt securities		87.2	%		89.3	%		87.4	%
Other		7.1	%		5.7	%		6.2	%
Total		100	%		100	%		100	%

Components of net periodic benefit cost are as follows:
Service cost	$	—		$	—		$	—
Interest cost on projected benefit obligations		75			70			106
Expected return on plan assets		—			—			—
Amortization of prior service costs		—			—			—
Amortization of actuarial loss		—			—			—
Net periodic benefit costs	$	75		$	70		$	106

The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were
Discount rate		1.7	%		2.4	%		2.2	%
Expected return on plan assets		4.0	%		4.0	%		4.0	%
Rate of pension increases		2.0	%		2.0	%		2.0	%
Rate of compensation increase		N/A			N/A			N/A

The following discloses information about the Company’s defined benefit pension plan that had an accumulated benefit obligation in excess of plan assets as of December 31,
Projected benefit obligation	$	3,540		$	3,068		$	3,488
Accumulated benefit obligation	$	3,540		$	3,068		$	3,488
Fair value of plan assets	$	1,645		$	1,557		$	1,654

As of December 31, 2016, the following benefit payments are expected to be paid as follows (in thousands):

2017	$	76
2018	$	78
2019	$	80
2020	$	81
2021	$	97
2022 — 2026	$	624

The Company made contributions to the plan of approximately $28,000 during year 2016, $34,000 during year 2015 and approximately $43,000 during 2014.

XML 35 R23.htm IDEA: XBRL DOCUMENT

ACCUMULATED OTHER COMPREHENSIVE LOSS

12 Months Ended

Dec. 31, 2016

ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive income is the combination of the additional minimum liability related to the Company’s defined benefit pension plan, recognized pursuant to ASC 715-30, “Compensation - Retirement Benefits - Defined Benefit Plans – Pension” and the accumulated gains or losses from foreign currency translation adjustments. The Company translates foreign currencies of its German, Canadian and Mexican subsidiaries into U.S. dollars using the period end exchange rate. Revenue and expenses were translated using the weighted-average exchange rates for the reporting period. All items are shown net of tax.

As of December 31, 2016, 2015 and 2014, the components of accumulated other comprehensive loss were as follows:

($ in thousands)	2016			2015			2014

Additional minimum pension liability	$	(1,338	)	$	(991	)	$	(1,323	)
Foreign currency translation adjustment		(205	)		(204	)		(271	)
Ending balance	$	(1,543	)	$	(1,195	)	$	(1,594	)

Quarterly Financial Information Disclosure [Abstract]

The entire disclosure for comprehensive income, which includes, but is not limited to, 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income.

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XML 36 R24.htm IDEA: XBRL DOCUMENT

QUARTERLY INFORMATION (UNAUDITED)

12 Months Ended

Dec. 31, 2016

QUARTERLY INFORMATION (UNAUDITED)

The following table sets forth selected quarterly financial data for 2016, 2015 and 2014 (in thousands, except share and per share data):

		2016 (by quarter)
	1	2	3	4

Revenues		$	1,043		$	996		$	848		$	925
Cost of Sales			279			275			232			284
Operating expenses			3,028			2,995			2,955			3,226
Loss from Operations			(2,264	)		(2,274	)		(2,339	)		(2,585	)
Interest expense (income), net			11			36			89			109
Other expense (income), net			(1	)		(200	)		-			-
Income tax expense (benefit)			3			4			3			11
Net loss		$	(2,277	)	$	(2,114	)	$	(2,431	)	$	(2,705	)

Net loss per share:
Net loss		$	(0.03	)	$	(0.02	)	$	(0.03	)	$	(0.03	)
Preferred dividends		$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.00	)
Basic loss per share to common shareholders		$	(0.03	)	$	(0.03	)	$	(0.03	)	$	(0.00	)
Basic weighted-average shares outstanding			94,073,367			94,298,567			94,550,721			94,779,243

		2015 (by quarter)
	1	2	3	4

Revenues		$	991		$	1,695		$	1,181		$	902
Cost of Sales			286			798			321			539
Operating expenses			2,641			2,660			2,813			2,921
Loss from Operations			(1,936	)		(1,763	)		(1,953	)		(2,558	)
Interest expense (income), net			437			(2	)		1			11
Other expense (income), net			(46	)		—			(99	)		—
Income tax expense (benefit)			3			6			3			10
Net loss		$	(2,330	)	$	(1,767	)	$	(1,858	)	$	(2,579	)

Net loss per share:
Net loss		$	(0.03	)	$	(0.02	)	$	(0.02	)	$	(0.03	)
Preferred dividends		$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Basic loss per share to common shareholders		$	(0.03	)	$	(0.02	)	$	(0.02	)	$	(0.03	)
Basic weighted-average shares outstanding			93,515,640			93,674,349			93,876,339			94,070,895

		2014 (by quarter)
	1	2	3	4

Revenues		$	1,063		$	937		$	919		$	1,240
Cost of Sales			251			232			248			261
Operating expenses			2,706			2,667			2,793			2,797
Loss from Operations			(1,894	)		(1,962	)		(2,122	)		(1,818	)
Interest expense (income), net			79			105			104			128
Other expense (income), net			(283	)		(5	)		(1	)		(8	)
Income tax expense (benefit)			—			12			3			10
Net loss		$	(1,690	)	$	(2,074	)	$	(2,228	)	$	(1,948	)

Net loss per share:
Net loss		$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.02	)
Preferred dividends		$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Basic loss per share to common shareholders		$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.02	)
Basic weighted-average shares outstanding			88,604,221			91,930,400			93,162,548			93,384,834

XML 37 R25.htm IDEA: XBRL DOCUMENT

SUBSEQUENT EVENTS	12 Months Ended
SUBSEQUENT EVENTS	Dec. 31, 2016
Notes to Financial Statements
SUBSEQUENT EVENTS	Subsequent to December 31, 2016, the Company has borrowed an additional $500,000 through March 30, 2017 under the Lines of Credit.

XML 38 R26.htm IDEA: XBRL DOCUMENT

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2016

Principles of Consolidation

Operating Cycle

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for doubtful accounts receivable, inventory carrying values, deferred tax asset valuation allowances, accounting for loss contingencies, recoverability of goodwill and acquired intangible assets and amortization periods, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, assumptions used in the application of fair value methodologies to calculate the fair value of derivative liabilities, revenue and cost of revenues recognized under the percentage of completion method and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates.

Cash and cash equivalents

The Company defines cash equivalents as highly liquid investments with original maturities of less than 90 days that are not held for sale in the ordinary course of business.

Accounts receivable

Inventories

Finished goods inventories are stated at the lower of cost, determined using the average cost method, or market. See Note 6.

Property, Equipment and Leasehold Improvements

Fair Value of Financial Instruments

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.

The Company reviews the terms of the common and preferred stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.

The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.

Revenue recognition

The Company recognizes revenue from the following major revenue sources:

●	Long-term fixed-price contracts involving significant customization;

●	Fixed-price contracts involving minimal customization;

●	Software licensing;

●	Sales of computer hardware and identification media; and

●	Post-contract customer support (“ PCS”).

The Company recognizes revenue and profit as work progresses on long-term, fixed-price contracts involving significant amount of hardware and software customization using the percentage of completion method based on costs incurred to date compared to total estimated costs at completion. The primary components of costs incurred are third party software and direct labor cost including fringe benefits. Revenues recognized in excess of amounts billed are classified as current assets under “Costs and estimated earnings in excess of billings on uncompleted contracts”. Amounts billed to customers in excess of revenues recognized are classified as current liabilities under “Billings in excess of costs and estimated earnings on uncompleted contracts”. Revenue from contracts for which the Company cannot reliably estimate total costs or there are not significant amounts of customization are recognized upon completion. For contracts that require significant amounts of customization that the Company accounts for under the completed contract method of revenue recognition, the Company defers revenue recognition until customer acceptance is received. For contracts containing either extended or dependent payment terms, revenue recognition is deferred until such time as payment has been received by the Company. The Company also generates non-recurring revenue from the licensing of its software. Software license revenue is recognized upon the execution of a license agreement, upon deliverance, when fees are fixed and determinable, when collectability is probable, when all other significant obligations have been fulfilled and the Company has obtained vendor specific objective evidence (“VSOE”) of the fair value of the undelivered element. VSOE of fair value for customer support services is determined by reference to the price the customer pays for such element when sold separately; that is, the renewal rate offered to customers. In those instances when objective and reliable evidence of fair value exists for the undelivered items but not for the delivered items, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of arrangement consideration allocated to the delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items. The Company also generates revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer. The Company’s revenue from periodic maintenance agreements is generally recognized ratably over the respective maintenance periods provided no significant obligations remain and collectability of the related receivable is probable. Pricing of maintenance contracts is consistent period to period and calculated as a percentage of the software or hardware revenue. Amounts collected in advance for maintenance services are included in current liabilities under "Deferred revenue". Sales tax collected from customers is excluded from revenue.

Goodwill

The Company did not record any goodwill impairment charges for the years ended December 31, 2016, 2015 or 2014.

Intangible and Long Lived Assets

Concentration of Credit Risk

Stock-Based Compensation

Restricted stock units are recorded at the grant date fair value with corresponding compensation expense recorded ratably over the requisite service period.

Income Taxes

Foreign Currency Translation

Comprehensive Loss

Comprehensive loss consists of net gains and losses affecting shareholders’ equity that, under generally accepted accounting principles, are excluded from net loss. For the Company, the only items are the cumulative translation adjustment and the additional minimum liability related to the Company’s defined benefit pension plan, recognized pursuant to ASC 715-30, "Compensation - Retirement Benefits - Defined Benefit Plans – Pension".

Advertising Costs

Loss Per Share

(Amounts in thousands, except share and per share amounts)
	Year Ended December 31,
Numerator for basic and diluted loss per share:	2016			2015			2014
Net loss	$	(9,527	)	$	(8,534	)	$	(7,940	)
Preferred dividends		(1,347	)		(1,065	)		(51	)
Net loss available to common shareholders	$	(10,874	)	$	(9,599	)	$	(7,991	)

Denominator for basic loss per share — weighted-average shares outstanding		94,426,783			93,786,079			91,795,971
Effect of dilutive securities		—			—			—
Denominator for diluted loss per share — weighted-average shares outstanding		94,426,783			93,786,079			91,795,971

Basic and diluted loss per share:
Net loss	$	(0.10	)	$	(0.09	)	$	(0.09	)
Preferred dividends		(0.02	)		(0.01	)		(—	)
Net loss available to common shareholders	$	(0.12	)	$	(0.10	)	$	(0.09	)

The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as their effect would have been antidilutive:

Potential Dilutive Securities:	Common Share Equivalents at December 31, 2016		Common Share Equivalents at December 31, 2015		Common Share Equivalents at December 31, 2014
Convertible lines of credit		2,201,903		—		1,649,548
Convertible redeemable preferred stock – Series B		46,029		46,029		46,029
Convertible redeemable preferred stock – Series E		6,315,789		6,442,105		—
Convertible redeemable preferred stock – Series F		1,333,333		—		—
Convertible redeemable preferred stock – Series G		4,014,000		—		—
Stock options		6,506,843		5,376,969		4,057,296
Warrants		175,000		450,000		977,778
Total Potential Dilutive Securities		20,592,897		12,315,103		6,730,651

Recently Issued Accounting Standards

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2016

Summary Of Significant Accounting Policies Tables

Computation of basic and diluted loss per share

(Amounts in thousands, except share and per share amounts)
	Year Ended December 31,
Numerator for basic and diluted loss per share:	2016			2015			2014
Net loss	$	(9,527	)	$	(8,534	)	$	(7,940	)
Preferred dividends		(1,347	)		(1,065	)		(51	)
Net loss available to common shareholders	$	(10,874	)	$	(9,599	)	$	(7,991	)

Denominator for basic loss per share — weighted-average shares outstanding		94,426,783			93,786,079			91,795,971
Effect of dilutive securities		—			—			—
Denominator for diluted loss per share — weighted-average shares outstanding		94,426,783			93,786,079			91,795,971

Basic and diluted loss per share:
Net loss	$	(0.10	)	$	(0.09	)	$	(0.09	)
Preferred dividends		(0.02	)		(0.01	)		(—	)
Net loss available to common shareholders	$	(0.12	)	$	(0.10	)	$	(0.09	)

Potential Dilutive Securities

Potential Dilutive Securities:	Common Share Equivalents at December 31, 2016		Common Share Equivalents at December 31, 2015		Common Share Equivalents at December 31, 2014
Convertible lines of credit		2,201,903		—		1,649,548
Convertible redeemable preferred stock – Series B		46,029		46,029		46,029
Convertible redeemable preferred stock – Series E		6,315,789		6,442,105		—
Convertible redeemable preferred stock – Series F		1,333,333		—		—
Convertible redeemable preferred stock – Series G		4,014,000		—		—
Stock options		6,506,843		5,376,969		4,057,296
Warrants		175,000		450,000		977,778
Total Potential Dilutive Securities		20,592,897		12,315,103		6,730,651

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FAIR VALUE ACCOUNTING (Tables)

12 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Fair value measurement of Assets and liability

	Fair Value at December 31, 2016
($ in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Pension assets	$	1,645	$	1,645	$	—	$	—
Totals	$	1,645	$	1,645	$	—	$	—

	Fair Value at December 31, 2015
($ in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Pension assets	$	1,557	$	1,557	$	—	$	—
Totals	$	1,557	$	1,557	$	—	$	—

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INTANGIBLE ASSETS AND GOODWILL (Tables)

12 Months Ended

Dec. 31, 2016

Intangible Assets And Goodwill Tables

Intangible amortization expense

Fiscal Year Ended December 31,	Estimated Amortization Expense ($ in thousands)
2017	$	12
2018		12
2019		12
2020		12
2021		12
Thereafter		45
Total	$	105

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RELATED PARTIES (Tables)

12 Months Ended

Dec. 31, 2016

Related Parties Tables

Activity Under Lines Of Credit

The following table sets forth the Company’s activity under its Lines of Credit for the periods indicated:

Balance outstanding under Lines of Credit as of December 31, 2014	$	1,550
Borrowing under Lines of Credit		750
Repayments		(350	)
Exchange of Indebtedness for Series E Preferred Stock		(1,950	)
Balance outstanding under Lines of Credit as of December 31, 2015	$	—
Borrowings under Lines of Credit		2,650
Repayments		—
Balance outstanding under Lines of Credit as of December 31, 2016	$	2,650

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PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2016

Property And Equipment Tables

Property and equipment

($ in thousands)	2016			2015

Equipment	$	935		$	887
Leasehold improvements		11			11
Furniture		101			101
		1,047			999
Less accumulated depreciation		(954	)		(837	)
	$	93		$	162

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ACCRUED EXPENSES (Tables)

12 Months Ended

Dec. 31, 2016

Condensed Consolidated Statements Of Comprehensive Loss

Accrued expenses

($ in thousands)	December 31, 2016		December 31, 2015

Compensated absences	$	313	$	260
Wages, payroll taxes and sales commissions		28		11
Customer deposits		198		69
Liquidated damages		—		200
Royalties		147		147
Pension and employee benefit plans		7		6
Income and sales taxes		161		131
Dividends		27		261
Interest payable to related parties		102		—
Other		64		64
	$	1,047	$	1,149

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LINE OF CREDIT (Tables)

12 Months Ended

Dec. 31, 2016

Line Of Credit Tables

LINE OF CREDIT

($ in thousands)	December 31, 2016			December 31, 2015
Lines of Credit
8% convertible lines of credit. Face value of advances under lines of credit $2,650 at December 31, 2016 and $0 at December 31, 2015, respectively. Discount on advances under lines of credit is $122 at December 31, 2016 and $0 at December 31, 2015, respectively. Maturity date is December 31, 2017.	$	2,528		$	—

Total lines of credit to related parties		2,528			—
Less current portion		(2,528	)		—
Long-term lines of credit to related parties	$	—		$	—

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2016

Income Taxes Tables

Income tax provision

($ in thousands)	Year Ended December 31,
Current	2016		2015		2014
Federal	$	—	$	—	$	—
State		—		—		—
Foreign		21		22		25

Deferred
Federal		—		—		—
State		—		—		—
Foreign		—		—		—

	$	21	$	22	$	25

Deferred tax assets

($ in thousands)	2016			2015			2014

Net operating loss carryforwards	$	17,829		$	15,948		$	14,200
Intangible and fixed assets		102			220			427
Stock based compensation		2,324			1,861			1,565
Reserves and accrued expenses		8			8			6
Other		—			—			(85	)
		20,263			18,037			16,113
Less valuation allowance		(20,263	)		(18,037	)		(16,113	)

Net deferred tax assets	$	—		$	—		$	—

Reconciliation Income Tax Rate

	2016				2015			2014

Amounts computed at statutory rates		$	(3,239	)	$	(2,902	)	$	(2,699	)
State income tax, net of federal benefit			(462	)		(262	)		(212	)
Expiration of net operating loss carryforwards			1,082			695			708
Non-deductible interest			49			149			145
Foreign taxes			362			413			386
Other			3			5			4
Net change in valuation allowance on deferred tax assets			2,226			1,924			1,693

		$	21		$	22		$	25

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2016

Stock issued in lieu of cash

Future minimum lease payments

($ in thousands)
2017	$	450
2018		201
2019		34
2020		34
2021		9
Total	$	728

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EQUITY (Tables)

12 Months Ended

Dec. 31, 2016

Equity Tables

Summary of common stock activity

	Common Stock

Shares outstanding at December 31, 2013		87,548,613
Shares issued pursuant to warrants exercised for cash		4,742,632
Shares issued pursuant to cashless warrants exercised		868,565
Conversion of related-party notes payable into Common Stock		154,607
Shares issued as compensation in lieu of cash		94,116
Shares issued pursuant to option exercises		98,617
Shares outstanding at December 31, 2014		93,507,150
Shares issued pursuant to payment of stock dividend on Series E Preferred		478,664
Shares issued pursuant to cashless warrants exercised		45,376
Shares issued pursuant to option exercises		39,705
Shares outstanding at December 31, 2015		94,070,895
Shares issued pursuant to payment of stock dividend on Series E Preferred		950,362
Shares issued pursuant to payment of stock dividend on Series F Preferred		48,513
Shares issued pursuant to payment of stock dividend on Series G Preferred		3,770
Shares issued pursuant to cashless warrants exercised		144,459
Shares issued pursuant to option exercises		12,626
Exchange of common shares for Series G Preferred		(3,383,830	)
Shares outstanding at December 31, 2016		91,846,795

Summary of warrant activity

	Warrants			Weighted- Average Exercise Price

Balance at December 31, 2013		6,598,416		$	0.63
Granted		302,778		$	2.02
Expired / Canceled		(55,000	)	$	1.10
Exercised		(5,868,416	)	$	0.58
Balance at December 31, 2014		977,778		$	1.22
Granted		—		$	0.00
Expired / Canceled		(419,444	)	$	1.86
Exercised		(108,334	)	$	1.01
Balance at December 31, 2015		450,000		$	0.67
Exercised		(275,000	)
Balance at December 31, 2016		175,000

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

Series B convertible preferred, shares outstanding

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STOCK-BASED COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2016

Stock option plan activity

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Balance at December 31, 2013		3,783,411		$	0.94		7.4
Granted		435,000		$	2.13		—
Expired/Cancelled		(62,498	)	$	1.96		—
Exercised		(98,617	)	$	0.68		—

Balance at December 31, 2014		4,057,296		$	1.06		6.8
Granted		2,110,000		$	1.63		—
Expired/Cancelled		(750,622	)	$	1.86		—
Exercised		(39,705	)	$	0.87		—

Balance at December 31, 2015		5,376,969		$	1.17		6.9
Granted		1,264,000			1.34		-
Expired/Cancelled		(121,500	)		1.29		-
Exercised		(12,626	)		0.21		-
Balance at December 31, 2016		6,506,843		$	1.21		6.6

Stock-based compensation related to equity options and restricted stock

	Year Ended December 31,
	2016		2015		2014
Cost of revenues	$	20	$	15	$	12
General and administrative		714		618		572
Sales and marketing		224		171		142
Research and development		204		156		130

Total	$	1,162	$	960	$	856

Common stock reserved for future issuance

	Common Stock

Convertible preferred stock – Series B, Series E, Series F and Series G		11,709,151
Convertible lines of credit		2,201,903
Stock options outstanding		6,506,843
Warrants outstanding		175,000
Authorized for future grant under stock option plans		55,938
		20,648,835

Tabular disclosure of an equity-based arrangement (such as stock or unit options and stock or unit awards) with an individual employee, which is generally an employment contract between the entity and a selected officer or key employee containing a promise by the employer to pay certain equity-based awards at future dates, sometimes including a period after retirement, upon compliance with stipulated requirements. This type of arrangement is distinguished from broader based employee benefit plans as it is usually tailored to the employee. Disclosure also typically includes the amount of related compensation expense recognized during the reporting period, the number of shares or units issued during the period under such arrangements, and the carrying amount as of the balance sheet date of the related liability.

Actuarial present value of the benefit obligations

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PENSION PLAN (Tables)

12 Months Ended

Dec. 31, 2016

Pension Plan Tables

($ in thousands)	2016			2015			2014
Change in benefit obligation:
Benefit obligation at beginning of year	$	3,068		$	3,488		$	2,821
Service cost		—			—			—
Interest cost		75			70			106
Actuarial (gain) loss		542			(123	)		1,003
Effect of exchange rate changes		(114	)		(356	)		(442	)
Effect of curtailment		—			—			—
Benefits paid		(31	)		(11	)		—
Benefit obligation at end of year		3,540			3,068			3,488

Change in plan assets:
Fair value of plan assets at beginning of year		1,557			1,654			1,790
Actual return of plan assets		142			40			47
Company contributions		28			34			43
Benefits paid		(31	)		—			—
Effect of exchange rate changes		(51	)		(171	)		(226	)
Fair value of plan assets at end of year		1,645			1,557			1,654
Funded status		(1,895	)		(1,511	)		(1,834	)
Unrecognized actuarial loss (gain)		1,831			1,413			1,911
Unrecognized prior service (benefit) cost		—			—			—
Additional minimum liability		(1,831	)		(1,413	)		(1,911	)
Unrecognized transition (asset) liability		—			—			—
Net amount recognized	$	(1,895	)	$	(1,511	)	$	(1,834	)

Plan Assets
Pension plan assets were comprised of the following asset categories at December 31,
Equity securities		5.7	%		5.0	%		6.4	%
Debt securities		87.2	%		89.3	%		87.4	%
Other		7.1	%		5.7	%		6.2	%
Total		100	%		100	%		100	%

Components of net periodic benefit cost are as follows:
Service cost	$	—		$	—		$	—
Interest cost on projected benefit obligations		75			70			106
Expected return on plan assets		—			—			—
Amortization of prior service costs		—			—			—
Amortization of actuarial loss		—			—			—
Net periodic benefit costs	$	75		$	70		$	106

The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were
Discount rate		1.7	%		2.4	%		2.2	%
Expected return on plan assets		4.0	%		4.0	%		4.0	%
Rate of pension increases		2.0	%		2.0	%		2.0	%
Rate of compensation increase		N/A			N/A			N/A

The following discloses information about the Company’s defined benefit pension plan that had an accumulated benefit obligation in excess of plan assets as of December 31,
Projected benefit obligation	$	3,540		$	3,068		$	3,488
Accumulated benefit obligation	$	3,540		$	3,068		$	3,488
Fair value of plan assets	$	1,645		$	1,557		$	1,654

Benefit payments

2017	$	76
2018	$	78
2019	$	80
2020	$	81
2021	$	97
2022 — 2026	$	624

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

12 Months Ended

Dec. 31, 2016

Components of accumulated other comprehensive loss

($ in thousands)	2016			2015			2014

Additional minimum pension liability	$	(1,338	)	$	(991	)	$	(1,323	)
Foreign currency translation adjustment		(205	)		(204	)		(271	)
Ending balance	$	(1,543	)	$	(1,195	)	$	(1,594	)

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QUARTERLY INFORMATION (UNAUDITED) (Tables)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information

		2016 (by quarter)
	1	2	3	4

Revenues		$	1,043		$	996		$	848		$	925
Cost of Sales			279			275			232			284
Operating expenses			3,028			2,995			2,955			3,226
Loss from Operations			(2,264	)		(2,274	)		(2,339	)		(2,585	)
Interest expense (income), net			11			36			89			109
Other expense (income), net			(1	)		(200	)		-			-
Income tax expense (benefit)			3			4			3			11
Net loss		$	(2,277	)	$	(2,114	)	$	(2,431	)	$	(2,705	)

Net loss per share:
Net loss		$	(0.03	)	$	(0.02	)	$	(0.03	)	$	(0.03	)
Preferred dividends		$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.00	)
Basic loss per share to common shareholders		$	(0.03	)	$	(0.03	)	$	(0.03	)	$	(0.03	)
Basic weighted-average shares outstanding			94,073,367			94,298,567			94,550,721			94,779,243

		2015 (by quarter)
	1	2	3	4

Revenues		$	991		$	1,695		$	1,181		$	902
Cost of Sales			286			798			321			539
Operating expenses			2,641			2,660			2,813			2,921
Loss from Operations			(1,936	)		(1,763	)		(1,953	)		(2,558	)
Interest expense (income), net			437			(2	)		1			11
Other expense (income), net			(46	)		—			(99	)		—
Income tax expense (benefit)			3			6			3			10
Net loss		$	(2,330	)	$	(1,767	)	$	(1,858	)	$	(2,579	)

Net loss per share:
Net loss		$	(0.03	)	$	(0.02	)	$	(0.02	)	$	(0.03	)
Preferred dividends		$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Basic loss per share to common shareholders		$	(0.03	)	$	(0.02	)	$	(0.02	)	$	(0.03	)
Basic weighted-average shares outstanding			93,515,640			93,674,349			93,876,339			94,070,895
		2014 (by quarter)
	1	2	3	4

Revenues		$	1,063		$	937		$	919		$	1,240
Cost of Sales			251			232			248			261
Operating expenses			2,706			2,667			2,793			2,797
Loss from Operations			(1,894	)		(1,962	)		(2,122	)		(1,818	)
Interest expense (income), net			79			105			104			128
Other expense (income), net			(283	)		(5	)		(1	)		(8	)
Income tax expense (benefit)			—			12			3			10
Net loss		$	(1,690	)	$	(2,074	)	$	(2,228	)	$	(1,948	)

Net loss per share:
Net loss		$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.02	)
Preferred dividends		$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Basic loss per share to common shareholders		$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.02	)
Basic weighted-average shares outstanding			88,604,221			91,930,400			93,162,548			93,384,834

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DESCRIPTION OF BUSINESS AND OPERATIONS (Details Narrative) - USD ($)		1 Months Ended	12 Months Ended
	Mar. 09, 2016	Dec. 27, 2016	Dec. 31, 2016	Dec. 29, 2016	Jul. 27, 2016	Dec. 31, 2015
State of Incorporation			Delaware
LOC, amount outstanding			$ 2,528,000
common stock per value			$ .01			$ 0.01
Lines of Credit Description	The Fourth Amendment (i) provides the Company with the ability to borrow up to $5.0 million under the terms of the Goldman LOC; (ii) permits Goldman to convert the outstanding principal, plus any accrued but unpaid interest due under the Goldman LOC (the "Outstanding Balance"), into shares of the Company's Common Stock for $1.25 per share; and (iii) extends the maturity date of the Goldman LOC to June 30, 2017.
Line of Credit principal amount	$ 500,000
Line of Intrest	The New Crocker LOC accrues interest at a rate of 8% per annum, and matures on the earlier to occur of June 30, 2017 or such date that the Company consummates a debt and/or equity financing resulting in net proceeds to the Company of at least $3.5 million. All outstanding amounts due under the terms of the New Crocker LOC are convertible into shares of the Company's Common Stock at $1.25 per share.
Common stock shares			91,853,499			94,077,599
Series G Preferred Stock [Member]
Series G Convertible Preferred Stock			6,021	1,625	6,120	0
preferred stock par value			$ 0.01		$ 0.01	$ 0.01
Dividend rate		10.00%
common stock per value					0.01
Liquidation preference per share value				$ 1,000	$ 1,000
Dividendm price		$ 1.50
Common stock shares				3,400,000
Total share value				$ 1,625,000
Net of issuance costs				$ 11,000
Line Of Credit [Member]
LOC, amount outstanding			$ 500,000
Crocker [Member]
LOC, amount outstanding			$ 2,150,000

XML 54 R42.htm IDEA: XBRL DOCUMENT

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Numerator for basic and diluted loss per share:
Net loss	$ (2,705)	$ (2,431)	$ (2,114)	$ (2,277)	$ (2,579)	$ (1,858)	$ (1,767)	$ (2,330)	$ (1,948)	$ (2,228)	$ (2,074)	$ (1,690)	$ (9,527)	$ (8,534)	$ (7,940)
Preferred dividends													(1,347)	(1,065)	(51)
Net loss available to common shareholders													$ (10,874)	$ (9,599)	$ (7,991)
Denominator for basic loss per share weighted-average shares outstanding	94,779,243	94,550,721	94,298,567	94,073,367	94,070,895	93,876,339	93,674,349	93,515,640	93,384,834	93,162,548	91,930,400	88,604,221	94,426,783	93,786,079	91,795,971
Effect of dilutive securities
Denominator for diluted loss per share weighted-average shares outstanding													94,426,783	93,786,079	91,795,971
Basic and diluted loss per share:
Net loss													$ (0.10)	$ (0.09)	$ (0.09)
Preferred dividends													(0.02)	(0.01)
Net loss available to common shareholders													$ (0.12)	$ (0.10)	$ (0.09)

XML 55 R43.htm IDEA: XBRL DOCUMENT

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Potential Dilutive Securities:
Potential Dilutive Securities	20,592,897	12,315,103	6,730,651
Series B Preferred Stock [Member]
Potential Dilutive Securities:
Potential Dilutive Securities	46,029	46,029	46,029
Series E Preferred Stock [Member]
Potential Dilutive Securities:
Potential Dilutive Securities	6,315,789	6,442,105
Series F Preferred Stock [Member]
Potential Dilutive Securities:
Potential Dilutive Securities	1,333,333
Series G Preferred Stock [Member]
Potential Dilutive Securities:
Potential Dilutive Securities	4,014,000
Convertible notes payable and lines of credit [Member]
Potential Dilutive Securities:
Potential Dilutive Securities	2,201,903		1,649,548
Stock options [Member]
Potential Dilutive Securities:
Potential Dilutive Securities	6,506,843	5,376,969	4,057,296
Warrants [Member]
Potential Dilutive Securities:
Potential Dilutive Securities	175,000	450,000	977,778

XML 56 R44.htm IDEA: XBRL DOCUMENT

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
FDIC insurance limits	$ 250,000	$ 250,000
Accounts receivable	$ 1,000	$ 3,000
Customer risk revenue percentage	30.00%	37.00%	17.00%
Customer accounted for revenue	$ 1,162,000	$ 1,753,000	$ 725,000
Trade receivables	78,000	78,000	0
Stock based compensation expense	$ 1,162,000	$ 744,000	$ 618,000
Expected term	5 years 2 months 1 day	5 years 2 months 1 day	5 years 2 months 1 day
Interest rate	2.60%	2.60%	2.60%
Foreign currency translation adjustment	$ 1,000	$ 67,000	$ 20,000
Advertising expense	$ 24,000	$ 12,000	$ 9,000
Other Employees [Member]
Forfeiture rate	6.00%
Officer [Member]
Forfeiture rate	0.00%
Directors [Member]
Forfeiture rate	4.10%
Maximum [Member]
Volatility rate	116.00%
MinimumMember
Volatility rate	65.00%

XML 57 R45.htm IDEA: XBRL DOCUMENT

FAIR VALUE ACCOUNTING (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Assets:
Pension assets	$ 1,645	$ 1,557	$ 1,654
Totals	1,645	1,557
Level 1
Assets:
Pension assets	1,645	1,557
Totals	1,645	1,557
Level 2
Assets:
Pension assets
Totals
Level 3
Assets:
Pension assets
Totals

XML 58 R46.htm IDEA: XBRL DOCUMENT

INTANGIBLE ASSETS AND GOODWILL (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Notes to Financial Statements
2017	$ 12
2018	12
2019	12
2020	12
2021	12
Thereafter	45
Totals	$ 105	$ 117

XML 59 R47.htm IDEA: XBRL DOCUMENT

INTANGIBLE ASSETS AND GOODWILL (Details Narrative) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Patents [Member]
Amortization expense	$ 12,000	$ 12,000	$ 12,000
Accumulated amortization	554,000	554,000
Carrying amount of Finite Lived Patents Gross	$ 105,000	$ 117,000
Weighted-average remaining life of acquired patents	9 years 6 months	9 years 6 months	9 years 6 months
Trademarks And Trade Names [Member]
Amortization expense	$ 0	$ 15,000	$ 15,000
Carrying amount of acquired trademarks and trade names	0	0
Accumulated amortization	$ 347,000	$ 347,000

XML 60 R48.htm IDEA: XBRL DOCUMENT

RELATED PARTIES (Details) - USD ($)	12 Months Ended
RELATED PARTIES (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Related Parties Details
Balance outstanding under Lines of Credit as of December 31, 2014		$ 1,550,000
Borrowing under Lines of Credit	2,650,000	750,000
Repayments		(350,000)
Exchange of Indebtedness for Series E Preferred Stock		(1,950,000)
Balance outstanding under Lines of Credit as of December 31, 2015	$ 2,650,000

XML 61 R49.htm IDEA: XBRL DOCUMENT

RELATED PARTIES (Details Narratives) - USD ($)	3 Months Ended	12 Months Ended
RELATED PARTIES (Details Narratives) - USD ($)	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
LOC Borrowings		$ 2,650,000	$ 400,000	$ 1,550,000
Repayment of line of credit			$ (350,000)
Warrant issued			0
Warrant Outstanding			200,000
Warrant term			6 years 10 months 24 days	6 years 9 months 18 days
Amortization of debt discount	$ 385,000,000	145,000	$ 438,000	$ 426,000
Unamortized of Note Discount		$ 122,000,000
Common Stock Exercisable Per Share		$ .01	$ 0.01
Accreted		$ 97,000,000
Line of Credit 1 [Member]
Line of Credit Borrowing capacity		$ 2,650,000
Amortization of debt discount			$ 146,000,000

XML 62 R50.htm IDEA: XBRL DOCUMENT

INVENTORY (Details Narrative) - USD ($) $ in Thousands	12 Months Ended
INVENTORY (Details Narrative) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Inventory Details Narrative
Inventory	$ 23	$ 46
Work in process	19,000	42,000
Direct labor cost, in-process projects		42,000
Equipment cost, in-process projects		21,000
Finished goods	4,000	4,000
Reserves for obsolete and slow-moving items	3,000	3,000
Inventory write down		$ 281

XML 63 R51.htm IDEA: XBRL DOCUMENT

PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Notes to Financial Statements
Equipment	$ 935	$ 887
Leasehold improvements	11	11
Furniture	101	101
Property and equipment total	1,047	999
Less accumulated depreciation	(954)	(837)
Property and equipment net	$ 93	$ 162

XML 64 R52.htm IDEA: XBRL DOCUMENT

PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Property And Equipment Details Narrative
Depreciation expense	$ 117,000	$ 137,000	$ 152,000

XML 65 R53.htm IDEA: XBRL DOCUMENT

ACCRUED EXPENSES (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Notes to Financial Statements
Compensated absences	$ 313	$ 260
Wages, payroll taxes and sales commissions	28	11
Customer deposits	198	69
Liquidated damages		200
Royalties	147	147
Pension and employee benefit plans	7	6
Income and sales taxes	161	131
Dividends	27	261
Interest	102
Other	64	64
Accrued liabilities	$ 1,047	$ 1,149

XML 66 R54.htm IDEA: XBRL DOCUMENT

LINES OF CREDIT (Details) - USD ($) $ in Thousands	12 Months Ended
LINES OF CREDIT (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Lines of credit to a related party	$ 2,528
Line of credit rate	8.00%
LOC Maturity Date	Dec. 31, 2017
Line Of Credit [Member]
Lines of credit to a related party	$ 500
Total lines of credit to related parties	2,528
Less current portion	(2,528)
Long-term notes payable and line of credit to related parties
Advances under line of credit	2,650	0
Discount on advances	$ 122	$ 0

The carrying value as of the balance sheet date of the current and noncurrent portions of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.

The carrying value as of the balance sheet date of the current portion of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.