ImageWare Systems (IWSY) 10-Q 10 Aug 15 2015 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Aug. 07, 2015
Document And Entity Information
Entity Registrant Name	IMAGEWARE SYSTEMS INC
Entity Central Index Key	941,685
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
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?	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		93,873,652
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2,015

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Current Assets:
Cash and cash equivalents	$ 6,448,000	$ 218,000
Accounts receivable, net of allowance for doubtful accounts of $3 at June 30, 2015 and December 31, 2014	313,000	266,000
Inventory, net	473,000	916,000
Other current assets	79,000	86,000
Total Current Assets	7,313,000	1,486,000
Property and equipment, net	184,000	211,000
Other assets	110,000	153,000
Intangible assets, net of accumulated amortization	131,000	144,000
Goodwill	3,416,000	3,416,000
Total Assets	11,154,000	5,410,000
Current Liabilities:
Accounts payable	133,000	459,000
Deferred revenue	650,000	1,827,000
Accrued expenses	1,068,000	1,013,000
Total Current Liabilities	$ 1,851,000	3,299,000
Convertible line of credit to related party, net of discount		1,311,000
Pension obligation	$ 1,844,000	1,834,000
Total Liabilities	3,695,000	6,444,000
Shareholders' Equity (Deficit):
Common stock, $0.01 par value, 150,000,000 shares authorized; 93,880,356 and 93,513,854 shares issued at June 30, 2015 and December 31, 2014, respectively, and 93,873,652 and 93,507,150 shares outstanding at June 30, 2015 and December 31, 2014, respectively.	938,000	934,000
Additional paid in capital	149,026,000	135,982,000
Treasury stock, at cost 6,704 shares	(64,000)	(64,000)
Accumulated other comprehensive loss	(1,548,000)	(1,594,000)
Accumulated deficit	(140,895,000)	(136,294,000)
Total Shareholders' Equity (Deficit)	7,459,000	(1,034,000)
Total Liabilities and Shareholders' Equity (Deficit)	11,154,000	5,410,000
Series B Preferred Stock [Member]
Shareholders' Equity (Deficit):
Preferred stock authorized 4,000,000 shares	$ 2,000	$ 2,000
Series E Preferred Stock [Member]
Shareholders' Equity (Deficit):
Preferred stock authorized 4,000,000 shares

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current Assets:
Accounts receivable, net of allowance for doubtful accounts	$ 3	$ 3
Shareholders' deficit:
Preferred stock, shares authorized	4,000,000
Common stock, par value	$ .01
Common stock, shares authorised	150,000,000
Common stock, shares issued	93,880,356	93,513,854
Common stock, shares outstanding	93,873,652	93,507,150
Treasury stock, shares	6,704
Series B Preferred Stock [Member]
Shareholders' deficit:
Preferred stock, shares authorized	750,000
Preferred stock, Par value	$ .01
Preferred stock, shares issued	389,400	239,400
Preferred stock, shares outstanding	389,400	239,400
Preferred stock, liquidation preference	$ 607	$ 607
Series E Preferred Stock [Member]
Shareholders' deficit:
Preferred stock, shares authorized	12,000
Preferred stock, Par value	$ 0.01
Preferred stock, shares issued	12,000	0
Preferred stock, shares outstanding	12,000	0
Preferred stock, liquidation preference	$ 12,000	$ 0

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues:
Product	$ 1,022	$ 281	$ 1,400	$ 715
Maintenance	673	656	1,287	1,285
Total	1,695	937	2,687	2,000
Cost of revenues:
Product	589	48	663	118
Maintenance	209	184	420	365
Gross profit	897	705	1,604	1,517
Operating expenses:
General and administrative	788	873	1,704	1,890
Sales and marketing	717	596	1,368	1,214
Research and development	1,114	1,152	2,148	2,181
Depreciation and amortization	41	46	83	88
Total	2,660	2,667	5,303	5,373
Loss from operations	(1,763)	(1,962)	(3,699)	(3,856)
Interest expense (income), net	$ (2)	105	435	184
Other income, net		(5)	(46)	(289)
Loss before income taxes	$ (1,761)	(2,062)	(4,088)	(3,751)
Income tax expense	6	12	8	12
Net loss	(1,767)	(2,074)	(4,096)	(3,763)
Preferred dividends	(302)	(13)	(506)	(25)
Net loss available to common shareholders	$ (2,069)	$ (2,087)	$ (4,602)	$ (3,788)
Basic income and diluted loss per common share - see Note 3:
Net loss	$ (0.02)	$ (0.02)	$ (0.04)	$ (0.04)
Preferred dividends	0	0	(0.01)	0
Basic and diluted loss per share available to common shareholders	$ (0.02)	$ (0.02)	$ (0.05)	$ (0.04)
Basic and diluted weighted-average shares outstanding	93,674,349	91,930,400	93,595,433	90,293,758

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Condensed Consolidated Statements Of Comprehensive Income Loss
Net loss	$ (1,767)	$ (2,074)	$ (4,096)	$ (3,763)
Other comprehensive income (loss):
Foreign currency translation adjustment	34	(7)	(46)	(16)
Comprehensive loss	$ (1,733)	$ (2,081)	$ (4,142)	$ (3,779)

CONDENSED CONSOLIDATED STATEME6

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities
Net loss	$ (4,096)	$ (3,763)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	83	88
Amortization of debt issuance costs and beneficial conversion feature	$ 426	182
Reduction in accounts payable and accrued liabilities from the expiration of statute of limitations		$ (216)
Warrants issued in lieu of cash paid for services	$ 80
Stock-based compensation	376	$ 425
Change in assets and liabilities
Accounts receivable	(47)	(98)
Inventory	443	(98)
Other assets	9	(64)
Accounts payable	(326)	106
Deferred revenue	(1,177)	(357)
Accrued expenses	83	78
Pension obligation	10	27
Total adjustments	(40)	73
Net cash used in operating activities	(4,136)	(3,690)
Cash flows from investing activities
Purchase of property and equipment	(43)	(70)
Net cash used in investing activities	(43)	(70)
Cash flows from financing activities
Proceeds from exercised stock options	33	$ 55
Proceeds from issuance of preferred stock, net of issuance costs	9,955
Proceeds from line of credit	750
Repayment of line of credit borrowings	$ (350)
Proceeds from exercised warrants to purchase stock		$ 2,798
Dividends paid	$ (25)	(25)
Net cash provided by financing activities	10,363	2,828
Effect of exchange rate changes on cash	46	(16)
Net increase (decrease) in cash and cash equivalents	6,230	(948)
Cash and cash equivalents at beginning of period	218	2,363
Cash and cash equivalents at end of period	6,448	1,415
Supplemental disclosure of cash flow information:
Cash paid for interest	$ 1	$ 2
Cash paid for income taxes
Summary of non-cash investing and financing activities:
Reclassification of warrants previously classified as derivative liabilities to additional paid-in capital		$ 57
Issuance of common stock warrants securing line of credit borrowing facility		127
Issuance of common stock pursuant to cashless warrant exercises		2
Issuance of common stock pursuant to conversion of Related-Party notes payable and accrued interest		$ 85
Beneficial conversion feature of convertible debt	$ 146
Conversion of related party notes into Series E Preferred	1,978
Stock dividend on Series E Preferred	$ 480

ORGANIZATION AND DESCRIPTION OF

ORGANIZATION AND DESCRIPTION OF BUSINESS	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS	Overview ImageWare Systems, Inc. (the “ Company Liquidity, Capital Resources 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. Our principal uses of cash have included cash used in operations, 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 Management believes that the Company’s current cash, cash equivalents and available borrowings under our existing line of credit will be sufficient to meet working capital and capital expenditure requirements for at least the next 12 months from June 30, 2015 and that we will have sufficient liquidity to fund our business and meet our contractual obligations during the aforementioned period.

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION	Basis of Presentation The accompanying condensed consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“ GAAP SEC Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015, or any other future periods. Significant Accounting Policies Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. 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 condensed 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 condensed consolidated financial statements in conformity with 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 condensed 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 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. The Company records its allowance for doubtful accounts based upon an 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 4, “ Inventory Fair Value of Financial Instruments For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expenses, deferred revenue and notes payable to related-parties, the carrying amounts approximate fair value due to their relatively short maturities. 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 common stock, preferred stock, warrants and convertible debt it issues to determine if there are embedded derivative instruments, including embedded conversion options that must 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, requiring bifurcation, 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 ● Post-contract customer support (“ PCS The Company’s revenue recognition policies are consistent with GAAP including the Financial Accounting Standards Board (“ FASB ASC Software Revenue Recognition Revenue Recognition, Construction-Type and Production-Type Contracts Revenue Recognition, Multiple Element Arrangements 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. 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. Customer Concentration For the three months ended June 30, 2015, three customers accounted for approximately 56% or $953,000 of our total revenue and had trade receivables at June 30, 2015 of $0. For the six months ended June 30, 2015, three customers accounted for approximately 42% or $1,126,000 of our total revenue and had trade receivables at June 30, 2015 of $0. For the three months ended June 30, 2014, one customer accounted for approximately 19% or $174,000 of total revenues and had trade receivables at June 30, 2014 of $0. For the six months ended June 30, 2014, one customer accounted for approximately 19% or $376,000 of total revenues and had trade receivables at June 30, 2014 of $0. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “ FASB FASB ASU 2014-09. ASU Revenue from Contracts with Customers FASB ASU No. 2014-12 Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period FASB ASU No. 2014-15 Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern FASB ASU No. 2014 16 Derivatives and Hedging (Topic 815) - Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity FASB ASU No. 2015-02 Consolidations FASB ASU No. 2015-03 Simplifying the Presentation of Debt Issuance Costs.” FASB ASU No. 2015-04 Compensation - Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.” FASB ASU No. 2015-05 'Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”. FASB ASU No. 2015-11 'Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory”.

NET LOSS PER COMMON SHARE

NET LOSS PER COMMON SHARE	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 3 - NET LOSS PER COMMON 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 common shareholders is adjusted to add back any preferred stock dividends and any interest on convertible debt reflected in the condensed consolidated statement of operations for the respective periods. The table below presents the computation of basic and diluted loss per share: (Amounts in thousands except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Numerator for basic and diluted loss per share: Net loss $ (1,767 ) $ (2,074 ) $ (4,096 ) $ (3,763 ) Preferred dividends (302 ) (13 ) (506 ) (25 ) Net loss available to common shareholders $ (2,069 ) $ (2,087 ) $ (4,602 ) $ (3,788 ) Denominator for basic and dilutive loss per share – weighted-average shares outstanding 93,674,349 91,930,400 93,595,433 90,293,758 Net loss $ (0.02 ) $ (0.02 ) $ (0.04 ) $ (0.04 ) Preferred dividends (0.00 ) (0.00 ) (0.01 ) (0.00 ) Basic and diluted loss per share available to common shareholders $ (0.02 ) $ (0.02 ) $ (0.05 ) $ (0.04 ) 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 For the Three and Six Months Ended June 30, 2015 2014 Convertible preferred stock 6,361,818 46,027 Stock options 4,041,635 3,668,416 Warrants 661,666 1,973,562 Total potential dilutive securities 11,065,119 5,668,005

SELECT BALANCE SHEET DETAILS

SELECT BALANCE SHEET DETAILS	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 4 - SELECT BALANCE SHEET DETAILS	Inventory Inventories of $473,000 as of June 30, 2015 were comprised of work in process of $465,000 representing direct labor costs of approximately $436,000 on in-process projects, approximately $29,000 of equipment related to in-process projects and finished goods of $8,000 net of reserves for obsolete and slow-moving items of $3,000. Inventories of $916,000 as of December 31, 2014 were comprised of work in process of $909,000 comprised of direct labor costs on in-process projects of $881,000 and equipment on in-process projects of $28,000. Finished goods inventories were $7,000 net of reserves for obsolete and slow-moving items of $3,000. Intangible Assets The Company has intangible assets in the form of trademarks, trade names and patents. The carrying amounts of the Company’s acquired trademark and trade name intangible assets were $8,000 and $15,000 as of June 30, 2015 and December 31, 2014, respectively, which include accumulated amortization of $339,000 and $332,000 as of June 30, 2015 and December 31, 2014, respectively. Amortization expense for the intangible assets was $4,000 and 7,000 for the three and six months ended June 30, 2015 and 2014, respectively. All intangible assets are being 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 The carrying amounts of the Company’s patent assets were $123,000 and $129,000 as of June 30, 2015 and December 31, 2014, respectively, which include accumulated amortization of $536,000 and $530,000 as of June 30, 2015 and December 31, 2014, respectively. Amortization expense for patent assets was $3,000 and $6,000 for the three and six months ended June 30, 2015 and 2014, respectively. Patent assets are being amortized on a straight-line basis over their weighted-average remaining life of approximately 11.0 years. The estimated acquired intangible amortization expense for the next five fiscal years is as follows: Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2015 (6 months) $ 14 2016 12 2017 12 2018 12 2019 12 Thereafter 69 Totals $ 131 Goodwill The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment. 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 as of June 30, 2015 and December 31, 2014.

LINE OF CREDIT

LINE OF CREDIT	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 5 - LINE OF CREDIT	Outstanding line of credit consists of the following: ($ in thousands) June 30, 2015 December 31, 2014 Line of Credit to a related party: 8% convertible line of credit. Face value of advances under line of credit was $0 at June 30, 2015 and $1,550 at December 31, 2014. Discount on advances under line of credit was $0 at June 30, 2015 and $239 at December 31, 2014. Maturity date is March 27, 2017. $ — $ 1,311 Total line of credit to related parties — 1,311 Less current portion (— ) (— ) Line of credit to related parties $ — $ 1,311 Lines of Credit In March 2013, the Company entered into a new unsecured line of credit agreement with available borrowings of up to $2,500,000 (the “ Line of Credit Holder Amendment As consideration for the initial Line of Credit, the Company issued to the a warrant, exercisable for 1,052,632 shares of the Company’s Common Stock (the "Line of Credit Warrant"). The 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 Line of Credit agreement. 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 Line of Credit agreement. During the six months ended June 30, 2015 and 2014, the Company recorded an aggregate of approximately $41,000 and $182,000, respectively in deferred financing fee amortization expense which is recorded as a component of interest expense in the Company’s condensed consolidated statements of operations. In April 2014, the Company and the Holder entered into a further amendment to the Line of Credit to decrease the available borrowings to $3,000,000 (the “ Second Amendment $500K Line of Credit Second Holder In December 2014, the Company and the Holder entered into a further amendment to the Line of Credit to increase the available borrowing to $5,000,000 and extend the maturity date of the Line of Credit to March 27, 2017 (the “ Third Amendment Outstanding Balance Advances under the credit facility are made at the Company’s request. As of December 31, 2014, advances made under the Line of Credit agreement aggregated $1,550,000 and there were no borrowings under the $500K Line of Credit. During the six months ended June 30, 2015, the Company borrowed $750,000 under the Line of Credit and borrowed $0 under the $500K Line of Credit. During the six months ended June 30, 2015, the Company repaid $350,000 in principal borrowings under the Line of Credit. In February 2015, as a result of the Series E Financing discussed under Note 1 above, the Company issued 1,978 shares of Series E Preferred to the Holder of the Line of Credit to satisfy $1,950,000 in principal borrowings under the 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 Line of Credit agreement was reduced to $3,050,000 with the maturity date unchanged and the $500K Line of Credit was terminated in accordance with its terms. The Company evaluated the lines of credit agreements 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 agreement). 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 agreement 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 line of credit agreement was issued (commitment date). As of December 31, 2014, the Company had recorded approximately $296,000 in beneficial conversion feature as a debt discount and had amortized approximately $56,000 of such debt discount as a component of interest expense. Pursuant to additional borrowings made during the six months ended June 30, 2015, the Company recognized an additional $146,000 in beneficial conversion feature as debt discount. As a result of the Series E financing and retirement of all amounts outstanding under the line of credit, the Company recognized all remaining unamortized debt discount of approximately $385,000 as a component of interest expense during the six months ended June 30, 2015.

EQUITY

EQUITY	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 6 - EQUITY	The Company’s Certificate of Incorporation, as amended, authorized 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 (“ Series B Preferred Series E Convertible Preferred Stock On January 29, 2015, the Company filed the Certificate of Designations, Preferences, and Rights of the Series E Convertible Preferred Stock (“ Certificate of Designations Series E Preferred 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 days prior written notice (the “ Company's Redemption Notice 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 (the ” Series E Financing The Company had 12,000 and 0 shares of Series E Preferred outstanding as of June 30, 2015 and December 31, 2014. At June 30, 2015 and December 31, 2014, the Company had cumulative undeclared dividends of approximately $0. There were no conversions of Series E Preferred into Common Stock during the three and six months ended June 30, 2015. The Company issued the holders of Series E Preferred 176,171 shares of Common Stock on June 30, 2015 as payment of dividends due on this date. For the six month period ended June 30, 2015, the Company has issued the holders of Series E Preferred 283,087 shares of Common Stock as payment of dividends due. Common Stock The following table summarizes Common Stock activity for the six months ended June 30, 2015: Common Stock Shares outstanding at December 31, 2014 93,507,150 Shares issued pursuant to payment of stock dividend on Series E Preferred 283,087 Shares issued pursuant to options exercised for cash 38,039 Shares issued pursuant to cashless warrants exercised 45,376 Shares outstanding at June 30, 2015 93,873,652 During the six months ended June 30, 2015, the Company issued 38,039 shares of Common Stock pursuant to the exercise of 38,039 options for cash proceeds of approximately $33,000 and issued 45,376 shares of Common Stock pursuant to the cashless exercise of 108,334 warrants. Also during the six months ended June 30, 2015, the Company issued 283,087 shares of Common Stock in payment of the accumulated Series E Preferred dividends due and payable as of June 30, 2015. Warrants The following table summarizes warrant activity for the following periods: Warrants Weighted- Average Exercise Price Balance at December 31, 2014 977,778 $ 1.22 Granted — $ 0.00 Expired / Canceled (207,778 ) $ 2.09 Exercised (108,334 ) $ 1.01 Balance at June 30, 2015 661,666 $ 0.98 During the six months ended June 30, 2015, there were 108,334 warrants exercised on a cashless basis resulting in the issuance of 45,376 shares of the Company’s Common Stock. Also during the six months ended June 30, 2015, 207,778 warrants expired. During the six months ended June 30, 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 six months ended June 30, 2015. The Company used the following assumptions in the application of the Black-Scholes option valuation model: 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 Condensed Consolidated Statement of Operations as a component of sales and marketing expense. As of June 30, 2015, warrants to purchase 661,666 shares of Common Stock at prices ranging from $0.50 to $1.83 were outstanding. All warrants are exercisable as of June 30, 2015, and expire at various dates through December 2016, with the exception of an aggregate of 150,000 warrants, which become exercisable only upon the attainment of specified events. The intrinsic value of warrants outstanding at June 30, 2015 was approximately $438,000. Stock-Based Compensation As of June 30, 2015, the Company had one active stock-based compensation plan for employees and nonemployee directors, which authorizes the granting of various equity-based incentives including stock options and restricted stock. 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 The Company estimates the fair value of its stock options using a Black-Scholes option-valuation model, consistent with the provisions of ASC No. 718 , Compensation – Stock Compensation ASC No. 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-valuation 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-valuation 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 the six months ended June 30, 2015 and 2014 ranged from 55% to 99%. 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 six months ended June 30, 2015 and 2014 was 5.9 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 six months ended June 30, 2015 and 2014 was 2.6%. Dividend yield is zero, as the Company does not expect to declare any dividends on the Company’s Common Stock 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. A summary of the activity under the Company’s stock option plans is as follows: Options Weighted-Average Exercise Price Balance at December 31, 2014 4,057,296 $ 1.06 Granted 303,500 $ 1.79 Expired/Cancelled (281,122 ) $ 1.98 Exercised (38,039 ) $ 0.86 Balance at June 30, 2015 4,041,635 $ 1.06 The intrinsic value of options exercised during the six months ended at June 30, 2015 was approximately $34,000. The intrinsic value of options exercisable at June 30, 2015 was approximately $2,586,000. The aggregate intrinsic value for all options outstanding as of June 30, 2015 was $2,668,000. The weighted-average grant-date per share fair value of options granted during the six months ended June 30, 2015 was $1.06. At June 30, 2015, the total remaining unrecognized compensation cost related to unvested stock options amounted to approximately $890,000 which will be recognized over a weighted-average period of 1.9 years. 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 to be rendered through December 2015. Such shares are forfeitable should the Board members’ services be terminated. 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 to be rendered through December 2014. Pursuant to these issuances, the Company recorded approximately $54,000 and $107,000 as compensation expense for the three and six months ended June 30, 2015, respectively, and $60,000 and $119,000 as compensation expense for the three and six months ended June 30, 2014, respectively. Stock-based compensation related to equity options and restricted stock grants has been classified as follows in the accompanying condensed consolidated statements of operations (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Cost of revenues $ 3 $ 3 $ 5 $ 6 General and administrative 130 140 253 285 Sales and marketing 32 34 62 70 Research and development 30 31 56 64 Total $ 195 $ 208 $ 376 $ 425

FAIR VALUE ACCOUNTING

FAIR VALUE ACCOUNTING	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 8 - FAIR VALUE ACCOUNTING	The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements and Disclosures, 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). 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. Fair Value at June 30, 2015 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,532 1,532 — — Totals $ 1,532 1,532 — — Fair Value at December 31, 2014 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,654 $ 1,654 $ — $ — Totals $ 1,654 $ 1,654 $ — $ — 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. Certain assets are measured at fair value on a non-recurring basis and are subject to fair value adjustments only in certain circumstances. Included in this category is goodwill written down to fair value when determined to be impaired. The valuation methods for goodwill involve assumptions based on management’s judgment using internal and external data, and which are classified in Level 3 of the valuation hierarchy.

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 9 - RELATED PARTY TRANSACTIONS	Related-Party Lines of Credit In March 2013, the Company entered into the Line of Credit with available borrowings of up to $2,500,000. The Line of Credit was extended by an existing shareholder and member of our Board of Directors. In March 2014, the Line of Credit’s borrowing was increased to an aggregate total of $3,500,000. Pursuant to the terms and conditions of the Amendment, the Holder has the right to convert up to $2.5 million of the outstanding balance of the Line of Credit into shares of the Company's Common Stock for $0.95 per share. Any remaining outstanding balance will be convertible into shares of the Company's Common Stock for $2.25 per share. As consideration for the initial Line of Credit, the Company issued to the Holder the Line of Credit Warrant, exercisable for 1,052,632 shares of the Company’s Common Stock. The 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 the Amendment Warrant, exercisable for 177,778 shares of the Company’s Common Stock. 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 line of credit agreement. 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 line of credit agreement. During the six months ended June 30, 2015 and 2014, the Company recorded an aggregate of approximately $41,000 and $182,000, respectively in deferred financing fee amortization expense which is recorded as a component of interest expense in the Company’s condensed consolidated statements of operations. In April 2014, the Company and the Holder entered into the Second Amendment decrease the available borrowings to $3,000,000. Contemporaneous with the execution of the Second Amendment, the Company entered into the $500K Line of Credit with the Second Holder, which amount is convertible into shares of the Company’s Common Stock for $2.25 per share. As a result of these amendments, total available borrowings under aggregate lines of credit available to the Company remain unchanged at a total of $3,500,000. In connection with the Second Amendment, the Holder assigned and transferred to the Second Holder one-half of the 177,778 warrants issued by the Company to the Holder to purchase shares of the Company’s Common Stock, originally granted to the Holder upon execution of the Amendment. In December 2014, the Company and the Holder entered into the Third Amendment to increase the available borrowing to $5,000,000 and extend the maturity date of the Line of Credit to March 27, 2017. Also, as a result of the Third Amendment, the Holder has the right to convert up to $2,500,000 outstanding principal, plus any accrued but unpaid interest 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 $5,000,000. Advances under the credit facility are made at the Company’s request. As of December 31, 2014, advances made under the Line of Credit agreement aggregated $1,550,000 and there were no borrowings under the $500K Line of Credit. During the six months ended June 30, 2015, the Company borrowed $750,000 under the Line of Credit and borrowed $0 under the $500K Line of Credit. During the six months ended June 30, 2015, the Company repaid $350,000 in principal borrowings under the Line of Credit. In February 2015, as a result of the Series E Financing discussed under Note 1 above, the Company issued 1,978 shares of Series E Preferred to the Holder of the Line of Credit to satisfy $1,950,000 in principal borrowings under the 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 Line of Credit agreement was reduced to $3,050,000 with the maturity date unchanged and the $500K Line of Credit was terminated in accordance with its terms. The Company evaluated the lines of credit agreements 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 agreement). 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 agreement 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 line of credit agreement was issued (commitment date). As of December 31, 2014, the Company had recorded approximately $296,000 in beneficial conversion feature as a debt discount and had amortized approximately $56,000 of such debt discount as a component of interest expense. Pursuant to additional borrowings made during the six months ended June 30, 2015, the Company recognized an additional $146,000 in beneficial conversion feature as debt discount. As a result of the Series E financing and retirement of all amounts outstanding under the line of credit, the Company recognized all remaining unamortized debt discount of approximately $385,000 as a component of interest expense during the six months ended June 30, 2015.

CONTINGENT LIABILITIES

CONTINGENT LIABILITIES	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Note 10 - CONTINGENT LIABILITIES	During the six months ended June 30, 2015 and 2014, the Company wrote off certain accounts payable and accrued expenses totaling approximately $0 and $216,000, respectively, which is included in “Other income” in the accompanying condensed consolidated statements of operations. Such accounts payable and accrued expenses represented amounts that could not be paid in full at the time, or were, in the view of management, unenforceable. While management believes that such amounts no longer represent recognized liabilities of the Company, such creditors may subsequently assert a claim against the Company. Employment Agreements The Company has employment agreements with its Chief Executive Officer, Senior Vice President of Administration and Chief Financial Officer and 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 nine months prior to or thirteen months following a change of control, 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 and Chief Technical Officer, these executives 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 months of base salary; (ii) continuation of their medical and health benefits 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 nine months prior to or thirteen months following a change of control (defined below), they are entitled to the severance benefits described above, except that 100% of their outstanding stock options and restricted stock awards will immediately vest. Leases 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 June 30 2015: ● 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, 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 ● 425 square feet of office space in Mexico City, Mexico, at a cost of approximately $3,000 per month until the expiration of the lease on July 31, 2015. At June 30, 2015, future minimum lease payments are as follows: ($ in thousands) 2015 (6 months) $ 216 2016 $ 421 2017 $ 386 2018 $ 168 2019 and thereafter $ — $ 1,191 Rental expense incurred under operating leases for the six months ended June 30, 2015 and 2014 was approximately $227,000 and $209,000, respectively.

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS	6 Months Ended
	Jun. 30, 2015
Subsequent Events [Abstract]
Note 11 - SUBSEQUENT EVENTS	Management has reviewed and evaluated subsequent events and transactions occurring after the balance sheet date through the filing of this Quarterly Report on Form 10-Q and determined that no subsequent events occurred.

SIGNIFICANT ACCOUNTING POLICI17

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Policies)	6 Months Ended
	Jun. 30, 2015
Significant Accounting Policies And Basis Of Presentation Policies
Basis of Presentation	The accompanying condensed consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“ GAAP SEC Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015, or any other future periods.
Principles of Consolidation	The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. 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 condensed 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 condensed consolidated financial statements in conformity with 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 condensed 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	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. The Company records its allowance for doubtful accounts based upon an 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 4, “ Inventory
Fair Value of Financial Instruments	For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expenses, deferred revenue and notes payable to related-parties, the carrying amounts approximate fair value due to their relatively short maturities.
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 common stock, preferred stock, warrants and convertible debt it issues to determine if there are embedded derivative instruments, including embedded conversion options that must 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, requiring bifurcation, 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 ● Post-contract customer support (“ PCS The Company’s revenue recognition policies are consistent with GAAP including the Financial Accounting Standards Board (“ FASB ASC Software Revenue Recognition Revenue Recognition, Construction-Type and Production-Type Contracts Revenue Recognition, Multiple Element Arrangements 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. 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.
Customer Concentration	For the three months ended June 30, 2015, three customers accounted for approximately 56% or $953,000 of our total revenue and had trade receivables at June 30, 2015 of $0. For the six months ended June 30, 2015, three customers accounted for approximately 42% or $1,126,000 of our total revenue and had trade receivables at June 30, 2015 of $0. For the three months ended June 30, 2014, one customer accounted for approximately 19% or $174,000 of total revenues and had trade receivables at June 30, 2014 of $0. For the six months ended June 30, 2014, one customer accounted for approximately 19% or $376,000 of total revenues and had trade receivables at June 30, 2014 of $0.
Recently Issued Accounting Standards	From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “ FASB FASB ASU 2014-09. ASU Revenue from Contracts with Customers FASB ASU No. 2014-12 Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period FASB ASU No. 2014-15 Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern FASB ASU No. 2014 16 Derivatives and Hedging (Topic 815) - Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity FASB ASU No. 2015-02 Consolidations FASB ASU No. 2015-03 Simplifying the Presentation of Debt Issuance Costs.” FASB ASU No. 2015-04 Compensation - Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.” FASB ASU No. 2015-05 'Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”. FASB ASU No. 2015-11 'Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory”.

NET LOSS PER COMMON SHARE (Tabl

NET LOSS PER COMMON SHARE (Tables)	6 Months Ended
	Jun. 30, 2015
Net Loss Per Common Share Tables
Computation of basic and diluted loss per share	(Amounts in thousands except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Numerator for basic and diluted loss per share: Net loss $ (1,767 ) $ (2,074 ) $ (4,096 ) $ (3,763 ) Preferred dividends (302 ) (13 ) (506 ) (25 ) Net loss available to common shareholders $ (2,069 ) $ (2,087 ) $ (4,602 ) $ (3,788 ) Denominator for basic and dilutive loss per share – weighted-average shares outstanding 93,674,349 91,930,400 93,595,433 90,293,758 Net loss $ (0.02 ) $ (0.02 ) $ (0.04 ) $ (0.04 ) Preferred dividends (0.00 ) (0.00 ) (0.01 ) (0.00 ) Basic and diluted loss per share available to common shareholders $ (0.02 ) $ (0.02 ) $ (0.05 ) $ (0.04 )
Weighted-average securities from calculation of diluted loss per share	Potential Dilutive securities For the Three and Six Months Ended June 30, 2015 2014 Convertible preferred stock 6,361,818 46,027 Stock options 4,041,635 3,668,416 Warrants 661,666 1,973,562 Total potential dilutive securities 11,065,119 5,668,005

SELECT BALANCE SHEET DETAILS (T

SELECT BALANCE SHEET DETAILS (Tables)	6 Months Ended
	Jun. 30, 2015
Select Balance Sheet Details Tables
Estimated acquired intangible amortization expense	Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2015 (6 months) $ 14 2016 12 2017 12 2018 12 2019 12 Thereafter 69 Totals $ 131

LINE OF CREDIT (Tables)

LINE OF CREDIT (Tables)	6 Months Ended
	Jun. 30, 2015
Line Of Credit Tables
Line of Credit	($ in thousands) June 30, 2015 December 31, 2014 Line of Credit to a related party: 8% convertible line of credit. Face value of advances under line of credit was $0 at June 30, 2015 and $1,550 at December 31, 2014. Discount on advances under line of credit was $0 at June 30, 2015 and $239 at December 31, 2014. Maturity date is March 27, 2017. $ — $ 1,311 Total line of credit to related parties — 1,311 Less current portion (— ) (— ) Line of credit to related parties $ — $ 1,311

EQUITY (Tables)

EQUITY (Tables)	6 Months Ended
	Jun. 30, 2015
Equity Tables
Summary of common stock activity	Common Stock Shares outstanding at December 31, 2014 93,507,150 Shares issued pursuant to payment of stock dividend on Series E Preferred 283,087 Shares issued pursuant to options exercised for cash 38,039 Shares issued pursuant to cashless warrants exercised 45,376 Shares outstanding at June 30, 2015 93,873,652
Summary of warrant activity	Warrants Weighted- Average Exercise Price Balance at December 31, 2014 977,778 $ 1.22 Granted — $ 0.00 Expired / Canceled (207,778 ) $ 2.09 Exercised (108,334 ) $ 1.01 Balance at June 30, 2015 661,666 $ 0.98
Summary of stock option plans activity	Options Weighted-Average Exercise Price Balance at December 31, 2014 4,057,296 $ 1.06 Granted 303,500 $ 1.79 Expired/Cancelled (281,122 ) $ 1.98 Exercised (38,039 ) $ 0.86 Balance at June 30, 2015 4,041,635 $ 1.06
Stock based compensation expense allocation	Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Cost of revenues $ 3 $ 3 $ 5 $ 6 General and administrative 130 140 253 285 Sales and marketing 32 34 62 70 Research and development 30 31 56 64 Total $ 195 $ 208 $ 376 $ 425

FAIR VALUE ACCOUNTING (Tables)

FAIR VALUE ACCOUNTING (Tables)	6 Months Ended
	Jun. 30, 2015
Fair Value Accounting Tables
Fair value measurement of Assets and liability	Fair Value at June 30, 2015 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,532 1,532 — — Totals $ 1,532 1,532 — — Fair Value at December 31, 2014 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,654 $ 1,654 $ — $ — Totals $ 1,654 $ 1,654 $ — $ —

CONTINGENT LIABILITIES (Tables)

CONTINGENT LIABILITIES (Tables)	6 Months Ended
	Jun. 30, 2015
Contingent Liabilities Tables
Future minimum lease payments	($ in thousands) 2015 (6 months) $ 216 2016 $ 421 2017 $ 386 2018 $ 168 2019 and thereafter $ — $ 1,191

ORGANIZATION AND DESCRIPTION 24

ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Narrative)	6 Months Ended
	Jun. 30, 2015
Organization And Description Of Business Details Narrative
State of incorporation	Delaware

SIGNIFICANT ACCOUNTING POLICI25

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Total revenues	$ 1,695,000	$ 937,000	$ 2,687,000	$ 2,000,000
Three Customer [Member]
Total revenues, percentage	56.00%		42.00%
Total revenues	$ 953,000		$ 1,126,000
Trade receivables	$ 0		$ 0
One Customer [Member]
Total revenues, percentage		19.00%		19.00%
Total revenues		$ 174,000		$ 376,000
Trade receivables		$ 0		$ 0

NET LOSS PER COMMON SHARE (Deta

NET LOSS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Numerator for basic and diluted loss per share:
Net loss	$ (1,767)	$ (2,074)	$ (4,096)	$ (3,763)
Preferred dividends	(302)	(13)	(506)	(25)
Net loss available to common shareholders	$ (2,069)	$ (2,087)	$ (4,602)	$ (3,788)
Denominator for basic and dilutive loss per share weighted-average shares outstanding	93,674,349	91,930,400	93,595,433	90,293,758
Net loss	$ (0.02)	$ (0.02)	$ (0.04)	$ (0.04)
Preferred dividends	0	0	(0.01)	0
Net loss available to common shareholders	$ (0.02)	$ (0.02)	$ (0.05)	$ (0.04)

NET LOSS PER COMMON SHARE (De27

NET LOSS PER COMMON SHARE (Details 1) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Dilutive securities
Total dilutive securities	$ 11,065,119	$ 5,668,005
Convertible Preferred Stock [Member]
Dilutive securities
Total dilutive securities	6,361,818	46,027
Stock Option [Member]
Dilutive securities
Total dilutive securities	4,041,635	3,668,416
Warrants [Member]
Dilutive securities
Total dilutive securities	$ 661,666	$ 1,973,562

SELECT BALANCE SHEET DETAILS (D

SELECT BALANCE SHEET DETAILS (Details) $ in Thousands	Dec. 31, 2014USD ($)
Select Balance Sheet Details Details
2015 (6 months)	$ 14
2,016	12
2,017	12
2,018	12
2,019	12
Thereafter	69
Totals	$ 131

SELECT BALANCE SHEET DETAILS 29

SELECT BALANCE SHEET DETAILS (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Inventory	$ 473,000		$ 473,000		$ 916,000
Work in process	465,000		465,000		909,000
Direct labor costs	436,000		970,000		881,000
Equipment related to in-process projects	29,000		28,000		28,000
Finished goods	8,000		8,000		7,000
Reserves for obsolete and slow-moving items	3,000		3,000		3,000
Carrying amount of acquired trademarks and trade names	8,000		8,000		15,000
Carrying amount of intangible assets	123,000		123,000		129,000
Accumulated amortization	339,000		339,000		332,000
Patent accumulated amortization	536,000		536,000		$ 530,000
Amortization expense	4,000		$ 7,000	$ 4,000
Weighted-average remaining life of intangible assets			11 years
Patents [Member]
Amortization expense	$ 3,000	$ 6,000	$ 3,000	$ 6,000

LINE OF CREDIT (Details)

LINE OF CREDIT (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Total Line of Credit		$ 1,311
Less current portion
Line of credit to related parties		$ 1,311
Related Party [Member]
Total Line of Credit		$ 1,311

LINE OF CREDIT (Details Narrati

LINE OF CREDIT (Details Narratives) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014	Apr. 30, 2014
Proceeds from LOC	$ 750,000
Repayment of principal	$ 350,000
Line of credit agreement amount			$ 1,311,000
Line of Credit [Member]
Line of credit agreement amount		$ 2,500,000
Line of Credit Amendment 1 [Member]
Borrowing capacity	$ 5,000,000
Current outstanding	$ 1,550,000
Fair value warrants risk free interest rate	2.58%
Fair value warrant dividend yield	0.00%
Volatility	74.00%
Line of credit agreement amount	$ 3,500,000
Line of credit convertible into shares of stock	$ 2,500,000
Conversion share price	$ .95
Warrant exercise price	$ 2.25
Additional deferred financing fee	$ 127,000
Line of Credit Amendment 2 [Member]
Line of credit agreement amount				$ 3,000,000
Line of Credit 2 [Member]
Line of credit agreement amount	$ 500,000
Conversion share price	$ 2.25
Line of Credit [Member]
Proceeds from LOC	$ 750,000
Repayment of principal	350,000
Beneficial conversion feature expense	$ 385,000
Fair value warrants risk free interest rate	2.58%
Fair value warrant dividend yield	0.00%
Volatility	79.00%
Deferred Financing Fee Accumulated Amortization	$ 41,000	$ 182,000

EQUITY (Details)

EQUITY (Details) - Jun. 30, 2015 - shares	Total
Equity Details
At beginning of period	93,507,150
Shares issued pursuant to payment of stock dividend on Series E Preferred	283,087
Shares issued pursuant to options exercised for cash	38,039
Shares issued pursuant to cashless warrants exercised	45,376
At end of period	93,873,652

EQUITY (Details 1)

EQUITY (Details 1) - 6 months ended Jun. 30, 2015 - $ / shares	Total
Equity Details 1
Begining Balance	977,778
Granted
Expired/Cancelled	(207,778)
Exercised	(108,334)
Ending Balance	661,666
Begining Balance, Weighted-Average Exercise Price	$ 1.22
Granted, Weighted-Average Exercise Price	0
Expired/Cancelled, Weighted-Average Exercise Price	2.09
Exercised, Weighted-Average Exercise Price	1.01
Ending Balance, Weighted-Average Exercise Price	$ .98

EQUITY (Details 2)

EQUITY (Details 2) - 6 months ended Jun. 30, 2015 - $ / shares	Total
Begining Balance	977,778
Granted
Expired/Cancelled	(207,778)
Exercised	(108,334)
Ending Balance	661,666
Begining Balance, Weighted-Average Exercise Price	$ 1.22
Granted, Weighted-Average Exercise Price	0
Expired/Cancelled, Weighted-Average Exercise Price	2.09
Exercised, Weighted-Average Exercise Price	1.01
Ending Balance, Weighted-Average Exercise Price	$ .98
Stock Option Plan [Member]
Begining Balance	4,057,296
Granted	303,500
Expired/Cancelled	(281,122)
Exercised	(38,039)
Ending Balance	4,041,635
Begining Balance, Weighted-Average Exercise Price	$ 1.06
Granted, Weighted-Average Exercise Price	1.79
Expired/Cancelled, Weighted-Average Exercise Price	1.98
Exercised, Weighted-Average Exercise Price	0.86
Ending Balance, Weighted-Average Exercise Price	$ 1.06

EQUITY (Details 3)

EQUITY (Details 3) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Stock based compensation, expense	$ 195	$ 208	$ 376	$ 425
Cost of Revenues [Member]
Stock based compensation, expense	3	3	5	6
General and Administrative Expense [Member]
Stock based compensation, expense	130	140	253	285
Sales and marketing [Member]
Stock based compensation, expense	32	34	62	70
Research and Development Expense [Member]
Stock based compensation, expense	$ 30	$ 31	$ 56	$ 64

EQUITY (Details Narratives)

EQUITY (Details Narratives) - USD ($)	1 Months Ended		2 Months Ended	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Feb. 28, 2015	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Preferred shares designated				4,000,000		4,000,000
Dividend payment						283,087
Common stock issued						156,154
Intrinsic value, warrants outstanding				$ 438,000		$ 438,000
Intrinsic value, options exercised						34,000
Intrinsic value, options exercisable				2,586,000		2,586,000
Intrinsic value, options outstanding				2,668,000		2,668,000
Unrecognized compensation cost unvested options				$ 890,000		$ 890,000
Weighted-average grant-date per share fair value of options granted						$ 1.06
Recognition period nonvested stock options						110 months 24 days
Warrant exercised to issue common stock pursuant to cashless exercise						210,000
Warrant to purchase common stock exercise price						$ 0
Warrants to purchase common stock outstanding				661,666		661,666
Warrants to purchase common stock not exercisable				150,000		150,000
Officers [Member]
Forfeiture rate						0.00%
Employees [Member]
Forfeiture rate						6.00%
Stock Compensation Plan [Member]
Historical volatility rate, minimum						64.00%	99.00%
Historical volatility rate, maximum						135.00%	135.00%
Expected term						5 years 10 months 24 days	5 years 10 months 24 days
Risk free interest rate						2.60%	2.60%
Dividend yield						0.00%	0.00%
Compensation expense				$ 141,000	$ 148,000	$ 269,000	$ 306,000
Issuance 1 [Member]
Common stock issued						38,039
Options exercised						38,039
Cash proceeds						$ 33,000
Issuance 2 [Member]
Common stock issued						45,376
Options exercised						108,334
Warrants expired						207,778
Consultant [Member]
Shares of common stock issued for services						100,000
Common stock price ranging of warrants				$ 1.83		$ 1.83
Existing shareholder and member of our Board of Directors [Member]
Shares of common stock issued for services						200,000
Warrant to purchase common stock exercise price						$ 1.72
Directors [Member]
Shares of common stock issued for services	94,116	144,000
Compensation expense				$ 54,000	$ 60,000	$ 107,000	$ 119,000
Series B Preferred Stock [Member]
Preferred outstanding	239,400			389,400		389,400
Preferred shares designated				750,000		750,000
Preferred par value				$ .01		$ .01
Undeclared dividends	$ 8,000			$ 8,000		$ 8,000
Series E Preferred Stock [Member]
Preferred outstanding	0			12,000		12,000
Preferred shares designated				12,000		12,000
Preferred par value				$ 0.01		$ 0.01
Undeclared dividends	$ 0			$ 0		$ 0
Private placement shares			12,000
Private placement share price			$ 1,000	$ 1,000		$ 1,000
Conversion ratio			526.32
Conversion price			$ 1.90
Dividend payment				176,171		283,087

FAIR VALUE ACCOUNTING (Details)

FAIR VALUE ACCOUNTING (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets:
Pension assets	$ 1,532	$ 1,654
Totals	1,532	1,654
Fair Value, Inputs, Level 1 [Member]
Assets:
Pension assets	1,532	1,654
Totals	$ 1,532	$ 1,654
Fair Value, Inputs, Level 2 [Member]
Assets:
Pension assets
Totals
Fair Value, Inputs, Level 3 [Member]
Assets:
Pension assets
Totals

CONTINGENT LIABILITIES (Details

CONTINGENT LIABILITIES (Details) $ in Thousands	Jun. 30, 2015USD ($)
Contingent Liabilities Details
2015 (6 months)	$ 216
2,016	421
2,017	386
2,018	$ 168
2019 and thereafter
Total	$ 1,191

CONTINGENT LIABILITIES (Detai39

CONTINGENT LIABILITIES (Details Narratives) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Write off accounts payable and accrued liabilities	$ 0	$ 216,000
Rental expense	227,000	$ 209,000
Headquarters [Member]
Future lease payment	18,000
Ontario Canada [Member]
Future lease payment	3,000
Portland [Member]
Future lease payment	16,000
Mexico City [Member]
Future lease payment	$ 3,000