9. STOCKHOLDER'S EQUITY

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

STOCKHOLDER'S EQUITY

Preferred Stock:

In April 2010, the Company issued to a certain accredited investor 1,333 shares of Series B Convertible Preferred Stock at $150 per share for a total of $200,000. The Series B Convertible Preferred Stock bears an annual dividend of 8%. The Series B stock may convert into common stock at a conversion rate of $0.15 per share. Additionally, the Series B stock provides warrants to purchase common stock of the Company at a strike price of $0.25 per share. The warrants expire in five years. 333,333 warrants were issued to the investor. In January 2010, the Company issued to certain accredited investors 9,067 shares of Series B Convertible Preferred Stock at $150 per share for a total of $1,360,000, including $500,000 in cash, the cancellation of $710,000 of existing indebtedness. The Series B Convertible Preferred Stock bears an annual dividend of 8%. The Series B stock may convert into common stock at a conversion rate of $0.15 per share. Additionally, the Series B stock investors were issued warrants to purchase common stock of the Company at a strike price of $0.25 per share. The warrants expire in five years. 2,266,667 warrants were issued to these investors.

Common Stock:

During February 2013, the Company converted approximately $10,000 of interest payable to a private lender by issuing 198,000 shares of its common stock.

In December 2012, the Company had stock subscription of 10,200,000 shares of their common stock at a price of $0.05 per share. This was part of an offering in a private investment in the Company’s common stock. The stock subscription was made up of $186,132 of cash from private investors, the extinguishment of $23,868 of interest on a note with one of the private investors, and the exchange of $300,000 of short term debt with Mr. John Steffens, the Company’s Chairman. Additionally, the investors were issued warrants to purchase common stock of the Company at a strike price of $0.20 per share. The warrants expire in five years. 2,040,000 warrants were issued to these investors. In 2013, an additional investment in the offering was made up of $60,000 of cash from private investors and the exchange of $15,000 of short term debt and the extinguishment of $2,012 of interest on a note with one of the private investors for 1,640,241 shares of the Company’s common stock and 328,048 warrants. In March 2013, the offering was officially closed and the Company issued 11,840,241 common shares in exchange for $592,012.

In April 2012, the Company converted approximately $6,000 of accounts payable to a vendor by issuing 40,000 shares of its common stock.

In March 2012, the Company converted approximately $265,000 of accrued Series B Preferred Stock dividends by issuing 1,765,333 shares of its common stock.

In March 2012, the Company converted approximately $3,544,000 of debt and $33,000 of interest payable to certain directors and significant shareholders of the Company and other private lenders by issuing 23,843,429 shares of its common stock.

Stock Grants:

In November 2012, the Company issued Mr. John P. Broderick, our Chief Executive Officer, a restricted stock award in the amount of 1,500,000 shares which will vest to him upon his termination, or change in control. The Company valued the award at the fair market value of the date of the award and is amortizing the total expense of $75,000 over the implicit service period of 2 years. The Company recorded expense of approximately $48,000 and $6,000 in fiscal 2013 and 2012, respectively. The Company has unrecognized compensation expense of approximately $28,000 associated with this grant.

In August 2007, the Company issued Mr. John P. Broderick, our Chief Executive Officer, a restricted stock award in the amount of 549,360 shares which will vest to him upon his resignation or termination. The Company used the Black-Scholes method to value these shares and assumed a life of 7 years. The Company recorded compensation expense of approximately $36,000 for fiscal 2013 and 2012. The Company has unrecognized compensation expense of approximately $43,000 associated with this grant.

Stock Options:

In 2007, the Board of Directors approved the 2007 Cicero Employee Stock Option Plan which permits the issuance of incentive and nonqualified stock options, stock appreciation rights, performance shares, and restricted and unrestricted stock to employees, officers, directors, consultants, and advisors. The aggregate number of shares of common stock which may be issued under this Plan shall not exceed 4,500,000 shares upon the exercise of awards and provide that the term of each award be determined by the Board of Directors. The Company also has a stock incentive plan for outside directors and the Company has set aside 1,200 shares of common stock for issuance under this plan.

Under the terms of the Plans, the exercise price of the incentive stock options may not be less than the fair market value of the stock on the date of the award and the options are exercisable for a period not to exceed ten years from date of grant. Stock appreciation rights entitle the recipients to receive the excess of the fair market value of the Company's stock on the exercise date, as determined by the Board of Directors, over the fair market value on the date of grant. Performance shares entitle recipients to acquire Company stock upon the attainment of specific performance goals set by the Board of Directors. Restricted stock entitles recipients to acquire Company stock subject to the right of the Company to repurchase the shares in the event conditions specified by the Board are not satisfied prior to the end of the restriction period. The Board may also grant unrestricted stock to participants at a cost not less than 85% of fair market value on the date of sale. Options granted vest at varying periods up to five years and expire in ten years.

Activity for stock options issued under these plans for the years ending December 31, 2013 and 2012 was as follows:

	Number of Options		Option Price Per Share		Weighted Average Exercise Price		Aggregate Intrinsic Value
Balance at December 31, 2011	4,296,193	0.06-39.00		$0.39
Granted	70,000	0.05-0.19		$0.14
Forfeited	(440,000)	0.06-31.00		$0.35
Expired	(4,700)	34.00-39.00		$36.39
Balance at December 31, 2012	3,921,493	0.06-46.00		$0.36
Granted	25,000	0.05		$0.05
Forfeited	(544,733)	0.06-46.00		$0.44
Expired	(5,550)	22.00-26.00		$25.57
Balance at December 31, 2013	3,396,210	0.05-46.00		$0.31		$0.00

Activity for non-vested stock options under these plans for the fiscal year ending December 31, 2013 and 2012 was as follows:

	Number of Options		Option Price Per Share		Weighted Average Exercise Price
Balance at December 31, 2011	952,414	0.06-0.10		$0.08
Granted	70,000	0.05-0.19		$0.14
Vested	(805,747)	0.05-0.09		$0.08
Forfeited	(75,000)	0.08-0.09		$0.08
Balance at December 31, 2012	141,667	0.05-0.19		$0.10
Granted	25,000	0.05		$0.05
Vested	(33,334)	0.05-0.19		$0.12
Forfeited	(8,333)	0.16		$0.16
Balance at December 31, 2013	125,000	0.05-0.19		$0.08

There were 25,000 options granted during 2013 and 70,000 options granted during 2012. The weighted average grant date fair value of options issued during the years ended December 31, 2013 and 2012 was equal to $0.05 and $0.14 per share, respectively. There were no option grants issued below fair market value during 2013 and 2012.

At December 31, 2013, there was unrecognized compensation cost of $2,000 related to stock options which is expected to be recognized over a weighted-average amortization period of one year.

At December 31, 2013 and 2012, options to purchase 3,271,210 and 3,779,826 and shares of common stock were exercisable, respectively, pursuant to the plans at prices ranging from $0.05 to $46.00. The following table summarizes information about stock options outstanding at December 31, 2013:

Exercise Price	Number Outstanding	Remaining Contractual Life for Options Outstanding	Number Exercisable	Weighted Average Exercise Price
$ 0.05-0.08	725,000	7.7	608,333	$  0.07
0.09	997,750	6.6	997,750	0.09
0.10-0.37	370,000	5.4	361,667	0.15
0.38-31.00	1,303,460	3.6	1,303,460	0.65
	3,396,210	5.6	3,271,210	$ 0.32

Preferred Stock:

Series A-1

The holders of the Series A-1 preferred stock shall have the rights and preferences set forth in the Certificate of Designations filed with the Secretary of State of the State of Delaware upon the approval of the Recapitalization. The rights and interests of the Series A-1 preferred stock of the Company will be substantially similar to the rights and interests of each of the series of the former Level 8 preferred stock other than for (i) anti-dilution protections that have been permanently waived and (ii) certain voting, redemption and other rights that holders of Series A-1 preferred stock will not be entitled to. All shares of Series A-1 preferred stock will have a liquidation preference pari passu with all other Series A-1 preferred stock.

The Series A-1 preferred stock is convertible at any time at the option of the holder into an initial conversion ratio of 1,000 shares of common stock for each share of Series A-1 preferred stock. The initial conversion ratio shall be adjusted in the event of any stock splits, stock dividends and other recapitalizations. The Series A-1 preferred stock is also convertible on an automatic basis in the event that (i) the Company closes on an additional $5,000,000 equity financing from strategic or institutional investors, or (ii) the Company has four consecutive quarters of positive cash flow as reflected on the Company’s financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) and filed with the Commission. The holders of Series A-1 preferred stock are entitled to receive equivalent dividends on an as-converted basis whenever the Company declares a dividend on its common stock, other than dividends payable in shares of common stock. The holders of the Series A-1 preferred stock are entitled to a liquidation preference of $500 per share of Series A-1 preferred stock upon the liquidation of the Company. The Series A-1 preferred stock is not redeemable.

The holders of Series A-1 preferred stock also possess the following voting rights. Each share of Series A-1 preferred stock shall represent that number of votes equal to the number of shares of common stock issuable upon conversion of a share of Series A-1 preferred stock. The holders of Series A-1 preferred stock and the holders of common stock shall vote together as a class on all matters except: (i) regarding the election of the Board of Directors of the Company (as set forth below); (ii) as required by law; or (iii) regarding certain corporate actions to be taken by the Company (as set forth below).

The approval of at least two-thirds of the holders of Series A-1 preferred stock voting together as a class, shall be required in order for the Company to: (i) merge or sell all or substantially all of its assets or to recapitalize or reorganize; (ii) authorize the issuance of any equity security having any right, preference or priority superior to or on parity with the Series A-1 preferred stock; (iii) redeem, repurchase or acquire indirectly or directly any of its equity securities, or to pay any dividends on the Company’s equity securities; (iv) amend or repeal any provisions of its certificate of incorporation or bylaws that would adversely affect the rights, preferences or privileges of the Series A-1 preferred stock; (v) effectuate a significant change in the principal business of the Company as conducted at the effective time of the Recapitalization; (vi) make any loan or advance to any entity other than in the ordinary course of business unless such entity is wholly owned by the Company; (vii) make any loan or advance to any person, including any employees or directors of the Company or any subsidiary, except in the ordinary course of business or pursuant to an approved employee stock or option plan; and (viii) guarantee, directly or indirectly any indebtedness or obligations, except for trade accounts of any subsidiary arising in the ordinary course of business. In addition, the unanimous vote of the Board of Directors is required for any liquidation, dissolution, recapitalization or reorganization of the Company. The voting rights of the holders of Series A-1 preferred stock set forth in this paragraph shall be terminated immediately upon the closing by the Company of at least an additional $5,000,000 equity financing from strategic or institutional investors.

In addition to the voting rights described above, the holders of a majority of the shares of Series A-1 preferred stock are entitled to appoint two observers to the Company’s Board of Directors who shall be entitled to receive all information received by members of the Board of Directors, and shall attend and participate without a vote at all meetings of the Company’s Board of Directors and any committees thereof. At the option of a majority of the holders of Series A-1 preferred stock, such holders may elect to temporarily or permanently exchange their board observer rights for two seats on the Company’s Board of Directors, each having all voting and other rights attendant to any member of the Company’s Board of Directors. There are two current members of the Board of Directors that are holders of the Series A-1 preferred stock. As part of the Recapitalization, the right of the holders of Series A-1 preferred stock to elect a majority of the voting members of the Company’s Board of Directors shall be terminated.

Series B

The Series B Preferred Stock ranks senior to the Common Stock and on parity with the Company’s outstanding Series A-1 Preferred Stock. As required by the Certificate of Designations applicable to the Series A-1 Preferred Stock, the Company obtained the consent of a holder representing in excess of two thirds of the outstanding shares of Series A-1 Preferred Stock to authorize and issue the shares of Series B Preferred Stock.

Dividends will accrue on each share of Series B Preferred Stock at the rate per annum of eight percent (8%). Dividends will accrue from the date on which a share of Series B Preferred Stock was issued by the Company until paid, whether or not declared, and shall be cumulative; provided, however, that except as set forth in the Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock (the “Series B Certificate”), such dividends will be payable only when, as, and if declared by the Board of Directors, and the Company will be under no obligation to pay such dividends.

Each share of Series B Preferred Stock is convertible, at the option of the holder, into that number of shares of common stock equal to $150.00 (the “Series B Original Issue Price”) divided by the conversion price of the Series B Preferred Stock then in effect, which is initially $0.15, subject to adjustment under certain circumstances as set forth in the Series B Certificate.

In the event of certain specified liquidation events, the holders of Series B Preferred Stock will be entitled to receive an amount per share equal to the Series B Original Issue Price plus any dividends accrued or declared but unpaid thereon before the payment of any amount to the holders of Common Stock and other junior securities.

The holders of Series B Preferred Stock will be entitled to vote, on an as-converted basis, on all matters submitted to a vote of the stockholders of the Company, and the holders of Series B Preferred Stock, Series A-1 Preferred Stock and common stock will vote together as a single class. In addition, until such time as the Company consummates at least an additional $5,000,000 equity financing from institutional or strategic investors, the approval of the holders of at least 2/3 of the outstanding shares of the Series B Preferred Stock voting together separately as a class will be required for the Company to take certain specified actions set forth in the Series B Certificate.

Stock Warrants:

The Company values warrants based on the Black-Scholes pricing model. In accordance with ASC 815, these warrants are classified as equity. The warrants were issued in conjunction with certain promissory notes, the Series B preferred Stock offering, and the private investment in the Company’s shares. At December 31, 2013, there were 6,281,333 exercisable warrants at an exercise price between $0.08 and $0.25 per share.

	Number of Warrants			Warrant Price Per Share
Balance at December 31, 2012		5,928,285	$0.08-$0.25	$	0.22
Issued		353,048	$0.10-$0.20	$	0.19
Exercised		—	—		—
Forfeited		—	—		—
Balance at December 31, 2013		6,281,333	$0.10-$0.25	$	0.22