ImageWare Systems (IWSY) 10-Q 9 Aug 16 2016 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 09, 2016
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, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		94,546,555
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2,016

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Current Assets:
Cash and cash equivalents	$ 327,000	$ 3,352,000
Accounts receivable, net of allowance for doubtful accounts of $3 at June 30, 2016 and December 31, 2015	274,000	349,000
Inventory, net	74,000	46,000
Other current assets	185,000	69,000
Total Current Assets	860,000	3,816,000
Property and equipment, net	141,000	162,000
Other assets	31,000	98,000
Intangible assets, net of accumulated amortization	112,000	117,000
Goodwill	3,416,000	3,416,000
Total Assets	4,560,000	7,609,000
Current Liabilities:
Accounts payable	198,000	198,000
Deferred revenue	625,000	1,059,000
Accrued expense	822,000	1,149,000
Lines of credit payable to related parties, net of discount	1,391,000
Total Current Liabilities	3,036,000	2,406,000
Pension obligation	1,592,000	1,511,000
Total Liabilities	4,628,000	3,917,000
Shareholders’ Equity (Deficit):
Common Stock, $0.01 par value, 150,000,000 shares authorized; 94,553,259 and 94,077,599 shares issued at June 30, 2016 and December 31, 2015, respectively, and 94,546,555 and 94,070,895 shares outstanding at June 30, 2016 and December 31, 2015, respectively.	944,000	940,000
Additional paid in capital	151,215,000	149,902,000
Treasury stock, at cost 6,704 shares	(64,000)	(64,000)
Accumulated other comprehensive loss	(1,226,000)	(1,195,000)
Accumulated deficit	(150,939,000)	(145,893,000)
Total Shareholders' Equity (Deficit)	(68,000)	3,692,000
Total Liabilities and Shareholders' Equity (Deficit)	4,560,000	7,609,000
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, 2016	Dec. 31, 2015
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	94,553,259	94,077,559
Common stock, shares outstanding	94,546,555	94,070,895
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	389,400
Preferred stock, shares outstanding	239,400	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	12,000
Preferred stock, shares outstanding	12,000	12,000
Preferred stock, liquidation preference	$ 12,000	$ 12,240

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenue:
Product	$ 356,000	$ 1,022,000	$ 759,000	$ 1,400,000
Maintenance	640,000	673,000	1,280,000	1,287,000
Revenues	996,000	1,695,000	2,039,000	2,687,000
Cost of revenue:
Product	56,000	589,000	130,000	663,000
Maintenance	219,000	209,000	424,000	420,000
Gross profit	721,000	897,000	1,485,000	1,604,000
Operating expense:
General and administrative	899,000	788,000	1,905,000	1,704,000
Sales and marketing	743,000	717,000	1,416,000	1,368,000
Research and development	1,318,000	1,114,000	2,631,000	2,148,000
Depreciation and amortization	35,000	41,000	70,000	83,000
Total	2,995,000	2,660,000	6,022,000	5,303,000
Loss from operations	(2,274,000)	(1,763,000)	(4,537,000)	(3,699,000)
Interest expense (income), net	36,000	(2,000)	46,000	435,000
Other income, net	(200,000)		(200,000)	(46,000)
Loss before income taxes	(2,110,000)	(1,761,000)	(4,383,000)	(4,088,000)
Income tax expense	4,000	6,000	6,000	8,000
Net loss	(2,114,000)	(1,767,000)	(4,389,000)	(4,096,000)
Preferred dividends	(309,000)	(302,000)	(657,000)	(506,000)
Net loss available to common shareholders	$ (2,423,000)	$ (2,069,000)	$ (5,046,000)	$ (4,602,000)
Basic income and diluted loss per common share - see Note 3:
Net loss	$ (0.02)	$ (0.02)	$ (0.05)	$ (0.04)
Preferred dividends	(0.01)	0	0	(0.01)
Basic and diluted loss per share available to common shareholders	$ (0.03)	$ (0.02)	$ (0.05)	$ (0.05)
Basic and diluted weighted-average shares outstanding	94,298,567	93,674,349	94,185,967	93,595,433

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Condensed Consolidated Statements Of Comprehensive Income Loss
Net loss	$ (2,114)	$ (1,767)	$ (4,389)	$ (4,096)
Other comprehensive income (loss):
Foreign currency translation adjustment	23	34	(31)	(46)
Comprehensive loss	$ (2,091)	$ (1,733)	$ (4,420)	$ (4,142)

CONDENSED CONSOLIDATED STATEME6

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities
Net loss	$ (4,389)	$ (4,096)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	70	83
Amortization of debt issuance costs and beneficial conversion feature	37	426
Reduction in accrued expense from the expiration of statute of limitations	(200)
Warrants issued in lieu of cash paid for services		80
Stock-based compensation	565	376
Change in assets and liabilities
Accounts receivable	75	(47)
Inventory	(28)	443
Other assets	(73)	9
Accounts payable		(326)
Deferred revenue	(434)	(1,177)
Accrued expense	(129)	83
Pension obligation	81	10
Total adjustments	(36)	(40)
Net cash used in operating activities	(4,425)	(4,136)
Cash flows from investing activities
Purchase of property and equipment	(44)	(43)
Net cash used in investing activities	(44)	(43)
Cash flows from financing activities
Proceeds from exercised stock options		33
Proceeds from issuance of preferred stock, net of issuance costs		9,955
Proceeds from lines of credit	1,500	750
Repayment of line of credit borrowings		(350)
Dividends paid	(25)	(25)
Net cash provided by financing activities	1,475	10,363
Effect of exchange rate changes on cash	(31)	46
Net increase (decrease) in cash and cash equivalents	(3,025)	6,230
Cash and cash equivalents at beginning of period	3,352	218
Cash and cash equivalents at end of period	327	6,448
Supplemental disclosure of cash flow information:
Cash paid for interest	1	1
Cash paid for income taxes
Summary of non-cash investing and financing activities:
Beneficial conversion feature of convertible debt	121	146
Conversion of related party notes into Series E Preferred		1,978
Stock dividend on Series E Preferred	$ 631	$ 480

ORGANIZATION AND DESCRIPTION OF

ORGANIZATION AND DESCRIPTION OF BUSINESS	6 Months Ended
	Jun. 30, 2016
Notes to Financial Statements
ORGANIZATION AND DESCRIPTION OF BUSINESS	Overview ImageWare Systems, Inc. (the “ Company Recent Developments On March 9, 2016, the Company and Neal I. Goldman, a director of the Company (" Goldman Fourth Amendment Goldman LOC Outstanding Balance Common Stock In addition, on March 9, 2016, the Company and Charles Crocker, also a director of the Company (" Crocker New Crocker LOC As of June 30, 2016, $1,250,000 was outstanding under the terms of the Goldman LOC and $250,000 was outstanding under the terms of the New Crocker LOC (together, the “ Lines of Credit 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, including our Lines of Credit. 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 Reliance on Lines of Credit During the three months ended June 30, 2016, we incurred borrowings under our existing Lines of Credit of approximately $1,500,000, due and payable on June 30, 2017, and an additional $500,000 subsequent to June 30, 2016. We anticipate needing to increase our borrowings under the Lines of Credit to continue to fund our working capital needs, thereby increasing the aggregate indebtedness due and payable on or before June 30, 2017. We currently do not anticipate generating sufficient revenue and profit to repay these borrowings in full when due. Therefore, unless the holders of the notes issued under the Lines of Credit convert any outstanding balance into shares of common stock, we will need to seek an extension of the maturity date of the Lines of Credit on or before June 30, 2017. If remaining available borrowings under our Lines of Credit are insufficient or we are unable to extend the maturity date of the Lines of Credit, we will be required to raise additional capital through debt and/or equity financing to continue operations. No assurances can be given that any such financing will be available to us on favorable terms, if at all. At this time, we do not have any commitments for alternative financing or for an extension of the maturity date of the Lines of Credit. Going Concern As reflected in the accompanying consolidated financial statements, the Company has continuing losses, negative working capital and negative cash flows from operations. Available borrowings under our existing Lines of Credit may be insufficient to provide for our working capital needs for the next twelve months. As a result, we may need to raise additional capital through debt and/or equity financing to execute our business plan. In addition, in the event we are unable to raise additional capital, we may be required to sell certain of the Company’s assets or license the Company’s technologies to others. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to continue to raise capital and generate positive cash flows from operations. However, the Company operates in markets that are emerging and highly competitive. There is no assurance that the Company will operate at a profit or generate positive cash flows in the future. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION	6 Months Ended
	Jun. 30, 2016
Notes to Financial Statements
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION	Basis of Presentation The accompanying condensed consolidated balance sheet as of December 31, 2015, 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, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016, 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 recognized in the consolidated statement of operations 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, 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 expense, deferred revenue and notes payable to related-parties, the carrying amounts approximate fair value due to their relatively short maturities. Revenue Recognition The Company recognizes revenue from the following major revenue sources: ● Long-term fixed-price contracts involving significant customization ● Fixed-price contracts involving minimal customization ● Software licensing ● Sales of computer hardware and identification media ● 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. Revenue recognized in excess of amounts billed are classified as current assets under “Costs and estimated earnings in excess of billings on uncompleted contracts”. Amounts billed to customers in excess of revenue recognized are classified as current liabilities under “Billings in excess of costs and estimated earnings on uncompleted contracts”. Revenue from contracts for which the Company cannot reliably estimate total costs, or there are not significant amounts of customization, are recognized upon completion. For contracts that require significant amounts of customization that the Company accounts for under the completed contract method of revenue recognition, the Company defers revenue recognition until customer acceptance is received. For contracts containing either extended or dependent payment terms, revenue recognition is deferred until such time as payment has been received by the Company. Customer Concentration For the three months ended June 30, 2016, two customers accounted for approximately 31% or $313,000 of our total revenue and had trade receivables at June 30, 2016 of $0. For the six months ended June 30, 2016, two customers accounted for approximately 32% or $644,000 of our total revenue and had trade receivables at June 30, 2016 of $53,000. 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. 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. 2014-15 Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern FASB ASU No. 2015-11 Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory”. FASB ASU No. 2016-01 Financial Instruments—Overall - Recognition and Measurement of Financial Assets and Financial Liabilities”. FASB ASU No. 2016-02 Leases” FASB ASU No. 2016-06 Derivatives and Hedging (Topic 815) – Contingent Put and Call Options in Debt Instruments FASB ASU No. 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) FASB ASU No. 2016-09 Compensation – Stock Compensation (Topic 718) FASB ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing FASB ASU No. 2016-13 inancial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

NET LOSS PER COMMON SHARE

NET LOSS PER COMMON SHARE	6 Months Ended
	Jun. 30, 2016
Notes to Financial Statements
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, 2016 2015 2016 2015 Numerator for basic and diluted loss per share: Net loss $ (2,114 ) $ (1,767 ) $ (4,389 ) $ (4,096 ) Preferred dividends (309 ) (302 ) (657 ) (506 ) Net loss available to common shareholders $ (2,423 ) $ (2,069 ) $ (5,046 ) $ (4,602 ) Denominator for basic and dilutive loss per share – weighted-average shares outstanding 94,298,567 93,674,349 94,185,967 93,595,433 Net loss $ (0.02 ) $ (0.02 ) $ (0.05 ) $ (0.04 ) Preferred dividends (0.01 ) (0.00 ) (0.00 ) (0.01 ) Basic and diluted loss per share available to common shareholders $ (0.03 ) $ (0.02 ) $ (0.05 ) $ (0.05 ) 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, 2016 2015 Convertible notes payable 1,209,635 — Convertible preferred stock 6,361,818 6,361,818 Stock options 5,582,136 4,041,635 Warrants 450,000 661,666 Total potential dilutive securities 13,603,589 11,065,119

SELECT BALANCE SHEET DETAILS

SELECT BALANCE SHEET DETAILS	6 Months Ended
	Jun. 30, 2016
Notes to Financial Statements
SELECT BALANCE SHEET DETAILS	Inventory Inventories of $74,000 as of June 30, 2016 were comprised of work in process of $63,000 representing direct labor costs on in-process projects and finished goods of $11,000 net of reserves for obsolete and slow-moving items of $3,000. Inventories of $46,000 as of December 31, 2015 were comprised of work in process of $42,000 representing direct labor costs on in-process projects and finished goods of $4,000 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 $0 as of June 30, 2016 and December 31, 2015, respectively, which include accumulated amortization of $347,000 as of June 30, 2016 and December 31, 2015. Amortization expense for the intangible assets was $0 for the three and six months ended June 30, 2016 and $4,000 and $7,000 for the three and six months ended June 30, 2015, respectively. All intangible assets were 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 $112,000 and $117,000 as of June 30, 2016 and December 31, 2015, respectively, which include accumulated amortization of $547,000 and $542,000 as of June 30, 2016 and December 31, 2015, respectively. Amortization expense for patent assets was $3,000 and $5,000 for the three and six months ended June 30, 2016 and 2015, respectively. Patent assets are being amortized on a straight-line basis over their weighted-average remaining life of approximately 10 years. The estimated acquired intangible amortization expense for the next five fiscal years is as follows: Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2016 (6 months) $ 6 2017 12 2018 12 2019 12 2020 12 Thereafter 58 Totals $ 112 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, 2016 and December 31, 2015.

LINE OF CREDIT

LINE OF CREDIT	6 Months Ended
	Jun. 30, 2016
Notes to Financial Statements
LINE OF CREDIT	Outstanding lines of credit consists of the following: ($ in thousands) June 30, 2016 December 31, 2015 Lines of Credit to related parties 8% convertible lines of credit. Face value of advances under lines of credit $1,500 at June 30, 2016 and $0 at December 31, 2015. Discount on advances under lines of credit is $109 at June 30, 2016 and $0 at December 31, 2015. Maturity date is June 30, 2017. $ 1,391 $ — Total lines of credit to related parties 1,391 — Less current portion (1,391 ) — Long-term lines of credit to related parties $ — $ — In March 2013, the Company entered into the Goldman LOC with available borrowings of up to $2.5 million. In March 2014, borrowings under the Goldman LOC were increased to an aggregate total of $3.5 million (the “ Amendment As consideration for the initial Goldman LOC, the Company issued a warrant to Goldman, exercisable for 1,052,632 shares of the Company’s Common Stock (the " LOC Warrant Amendment Warrant The Company estimated the fair value of the LOC 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 LOC Warrant as a deferred financing fee of approximately $580,000 to be amortized over the life of the Goldman LOC. The Company estimated the fair value of the Amendment Warrant using the Black-Scholes option pricing model using the following assumptions: term on one year, a risk free interest rate of 2.58%, a dividend yield of 0% and volatility of 74%. The Company recorded the fair value of the Amendment Warrant as an additional deferred financing fee of approximately $127,000 to be amortized over the life of the Goldman LOC. During the six months ended June 30, 2016 and 2015, the Company recorded an aggregate of approximately $24,000 and $41,000, 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 Goldman entered into a further amendment to the Goldman LOC to decrease the available borrowings to $3.0 million (the “ Second Amendment Crocker LOC In December 2014, the Company and Goldman entered into a further amendment to the Goldman LOC to increase the available borrowing to $5.0 million and extended the maturity date of the Goldman LOC to March 27, 2017 (the “ Third Amendment Qualified Financing In February 2015, as a result of the Series E Financing discussed under Note 6, “ Equity Series E Preferred On March 9, 2016, the Company and Goldman entered into the Fourth Amendment, that (i) provides the Company with the ability to borrow up to $5.0 million under the terms of the Goldman LOC; (ii) permits Goldman to convert the Outstanding Balance into shares of the Company's Common Stock for $1.25 per share; and (iii) extends the maturity date of the Goldman LOC to June 30, 2017. In addition, on March 9, 2016, the Company and Crocker entered into the New Crocker LOC in the principal amount of $500,000. The New Crocker LOC shall accrue interest at a rate of 8% per annum, and matures on the earlier to occur of June 30, 2017 or such date that the Company consummates a debt and/or equity financing resulting in net proceeds to the Company of at least $3.5 million. All outstanding amounts due under the terms of the New Crocker LOC shall be convertible into the Company's Common Stock at $1.25 per share. As of June 30, 2016, $1,500,000 was outstanding under the terms of the Lines of Credit. Subsequent to June 30, 2016, we borrowed an additional $500,000 under the Lines of Credit. As a result, approximately $3,500,000 remains available under the Lines of Credit for additional borrowings. The Company evaluated the Lines of Credit and determined that the instruments contain a contingent beneficial conversion feature, i.e. an embedded conversion right that enables the holder to obtain the underlying Common Stock at a price below market value. The beneficial conversion feature is contingent as the terms of the conversion do not permit the Company to compute the number of shares that the holder would receive if the contingent event occurs (i.e. future borrowings under the Line of Credit). The Company has considered the accounting for this contingent beneficial conversion feature using the guidance in ASC 470, Debt. The guidance in ASC 470 states that a contingent beneficial conversion feature in an instrument shall not be recognized in earnings until the contingency is resolved. The beneficial conversion features of future borrowings under the Line of Credit will be measured using the intrinsic value calculated at the date the contingency is resolved using the conversion price and trading value of the Company’s Common Stock at the date the Lines of Credit were issued (commitment date). Pursuant to borrowings made during the 2015 year, the Company recognized approximately $146,000 in beneficial conversion feature as debt discount. As a result of the retirement of all amounts outstanding under the Lines of Credit in 2015, the Company recognized all remaining unamortized debt discount of approximately $385,000 as a component of interest expense during the three months ended March 31, 2015. As there was $1,500,000 in borrowings under the Lines of Credit during the six months ended June 30, 2016, the Company recorded approximately $121,000 in debt discount attributable to the beneficial conversion feature during the six months ended June 30, 2016. During the three and six months ended June 30, 2016, the Company accreted approximately $12,000 of the note discount as a component of interest expense.

EQUITY

EQUITY	6 Months Ended
	Jun. 30, 2016
Notes to Financial Statements
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 Redeemable Preferred Stock On January 29, 2015, the Company filed the Certificate of Designations, Preferences, and Rights of the Series E Convertible Redeemable Preferred Stock (“ 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 in cash at a price per share of Series E Preferred equal to 110% of the Liquidation Preference Amount plus all accrued and unpaid dividends. Also, simultaneous with the occurrence of a Change of Control transaction, the Company, at its option, shall have the right to redeem all or a portion of the outstanding Series E Preferred in cash at a price per share of Series E Preferred equal to 110% of the Liquidation Preference Amount plus all accrued and unpaid dividends. In February 2015 the Company consummated a registered direct offering conducted without an underwriter or placement agent. In connection therewith, the Company issued 12,000 shares of Series E Preferred to certain investors at a price of $1,000 per share, with each share convertible into 526.32 shares of the Company’s Common Stock at $1.90 per share (the “ Series E Financing The Company had 12,000 shares of Series E Preferred outstanding as of June 30, 2016 and December 31, 2015. At June 30, 2016 and December 31, 2015, the Company had cumulative undeclared dividends of $0 and $240,000, respectively. There were no conversions of Series E Preferred into Common Stock during the six months ended June 30, 2016. The Company issued the holders of Series E Preferred 250,743 shares of Common Stock on June 30, 2016 as payment of dividends due on this date. For the six month period ended June 30, 2016, the Company has issued the holders of Series E Preferred 475,660 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, 2016: Common Stock Shares outstanding at December 31, 2015 94,070,895 Shares issued pursuant to payment of stock dividend on Series E Preferred 475,660 Shares outstanding at June 30, 2016 94,546,555 During the six months ended June 30, 2016, the Company issued 475,660 shares of Common Stock in payment of the accumulated Series E Preferred dividends due and payable as of June 30, 2016. Warrants The following table summarizes warrant activity for the following periods: Warrants Weighted- Average Exercise Price Balance at December 31, 2015 450,000 $ 0.67 Granted — — Expired / Canceled — — Exercised — — Balance at June 30, 2016 450,000 $ 0.67 As of June 30, 2016, warrants to purchase 450,000 shares of Common Stock at prices ranging from $0.50 to $1.10 were outstanding. All warrants are exercisable as of June 30, 2016, and expire at various dates through December 2017, 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, 2016 was approximately $231,000. Stock-Based Compensation As of June 30, 2016, 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 “ Plan 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, 2016 and 2015 ranged from 65% to 121%. 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, 2016 and 2015 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations for the six months ended June 30, 2016 and 2015 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, 2015 5,376,969 $ 1.17 Granted 236,000 1.24 Expired/Cancelled (30,833) 1.33 Exercised — - Balance at June 30, 2016 5,582,136 1.18 The intrinsic value of options exercisable at June 30, 2016 was approximately $1,201,000. The aggregate intrinsic value for all options outstanding as of June 30, 2016 was approximately $1,230,000. The weighted-average grant-date per share fair value of options granted during the six months ended June 30, 2016 was $0.78. At June 30, 2016, the total remaining unrecognized compensation cost related to unvested stock options amounted to approximately $1,556,000 which will be recognized over a weighted-average period of 2.1 years. In September 2015, the Company issued an aggregate of 144,000 options to purchase shares of the Company’s stock to certain members of the Company’s Board of Directors in return for their service from January 1, 2016 through December 31, 2016. Such options will vest at the rate of 12,000 options per month on the last day of each month during the 2016 year. The options have an exercise price of $1.73 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $44,000 and $90,000 for the three and six months ended June 30, 2016, respectively, based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model. In May 2015, the Company issued an aggregate of 16,000 options to purchase shares of the Company’s stock to a new member of the Company’s Board of Directors in return for their service from May, 2016 through December 31, 2016. Such options will vest at the rate of 2,000 options per month on the last day of each month during the 2016 year. The options have an exercise price of $1.29 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $3,000 during the six months ended June 30, 2016 based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model. 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. Pursuant to this issuance, the Company recorded approximately $54,000 as compensation expense for the six months ended June 30, 2015. 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, 2016 2015 2016 2015 Cost of revenue $ 5 $ 3 $ 10 $ 5 General and administrative 172 130 346 253 Sales and marketing 54 32 109 62 Research and development 49 30 100 56 Total $ 280 $ 195 $ 565 $ 376

FAIR VALUE ACCOUNTING

FAIR VALUE ACCOUNTING	6 Months Ended
	Jun. 30, 2016
Notes to Financial Statements
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, 2016 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,590 1,590 — — Totals $ 1,590 1,590 — — Fair Value at December 31, 2015 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,557 $ 1,557 $ — $ — Totals $ 1,557 $ 1,557 $ — $ — The Company’s pension assets are classified within Level 1 of the fair value hierarchy because they are valued using market prices. The pension assets are primarily comprised of the cash surrender value of insurance contracts. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The investment objectives for the plan are the preservation of capital, current income and long-term growth of capital. 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, 2016
Notes to Financial Statements
RELATED PARTY TRANSACTIONS	The Company has certain Lines of Credit extended by certain members of the Company’s Board of Directors. For a more detailed discussion of the Company’s Lines of Credit, see Note 5 - Lines of Credit. During the quarter ended June 30, 2016, the Company borrowed $1,250,000 under the terms of the Goldman LOC and $250,000 under the terms of the New Crocker LOC. Subsequent to June 30, 2016, we borrowed an additional $250,000 under the Goldman LOC and $250,000 under the New Crocker LOC. Each of Messrs. Goldman and Crocker are members of the Board of Directors of the Company.

CONTINGENT LIABILITIES

CONTINGENT LIABILITIES	6 Months Ended
	Jun. 30, 2016
Notes to Financial Statements
CONTINGENT LIABILITIES	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, 2016: ● 1,508 square feet in Ottawa, Province of Ontario, Canada, at a cost of approximately $3,000 per month until the expiration of the lease on March 31, 2021. This lease was renewed in April 2016 for a five-year period ending on March 31, 2021. Renewal terms were substantially unchanged from the existing lease. ● 8,045 square feet in Portland, Oregon, at a cost of approximately $16,000 per month until the expiration of the lease on October 31, 2018 and ● 425 square feet of office space in Mexico City, Mexico, at a cost of approximately $3,000 per month until terminated by either party. At June 30, 2016, future minimum lease payments are as follows: ($ in thousands) 2016 (6 months) $ 229 2017 $ 421 2018 $ 202 2019 $ 35 2020 and thereafter $ 44 $ 931 Rental expense incurred under operating leases for the six months ended June 30, 2016 and 2015 was approximately $242,000 and $227,000, respectively.

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS	6 Months Ended
	Jun. 30, 2016
Subsequent Events [Abstract]
SUBSEQUENT EVENTS	Subsequent to June 30, 2016, we borrowed an additional $250,000 under the terms of the Goldman LOC and $250,000 under the New Crocker LOC. As a result, the total principal amount due and payable under the Lines of Credit are $2,000,000, and approximately $3,500,000 remains available under the Lines of Credit for additional borrowings.

SIGNIFICANT ACCOUNTING POLICI17

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Policies)	6 Months Ended
	Jun. 30, 2016
Significant Accounting Policies And Basis Of Presentation Policies
Basis of Presentation	The accompanying condensed consolidated balance sheet as of December 31, 2015, 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, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016, 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 recognized in the consolidated statement of operations 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, 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 expense, deferred revenue and notes payable to related-parties, the carrying amounts approximate fair value due to their relatively short maturities.
Revenue recognition	The Company recognizes revenue from the following major revenue sources: ● Long-term fixed-price contracts involving significant customization ● Fixed-price contracts involving minimal customization ● Software licensing ● Sales of computer hardware and identification media ● 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. Revenue recognized in excess of amounts billed are classified as current assets under “Costs and estimated earnings in excess of billings on uncompleted contracts”. Amounts billed to customers in excess of revenue recognized are classified as current liabilities under “Billings in excess of costs and estimated earnings on uncompleted contracts”. Revenue from contracts for which the Company cannot reliably estimate total costs, or there are not significant amounts of customization, are recognized upon completion. For contracts that require significant amounts of customization that the Company accounts for under the completed contract method of revenue recognition, the Company defers revenue recognition until customer acceptance is received. For contracts containing either extended or dependent payment terms, revenue recognition is deferred until such time as payment has been received by the Company.
Customer Concentration	For the three months ended June 30, 2016, two customers accounted for approximately 31% or $313,000 of our total revenue and had trade receivables at June 30, 2016 of $0. For the six months ended June 30, 2016, two customers accounted for approximately 32% or $644,000 of our total revenue and had trade receivables at June 30, 2016 of $53,000. 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.
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. 2014-15 Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern FASB ASU No. 2015-11 Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory”. FASB ASU No. 2016-01 Financial Instruments—Overall - Recognition and Measurement of Financial Assets and Financial Liabilities”. FASB ASU No. 2016-02 Leases” FASB ASU No. 2016-06 Derivatives and Hedging (Topic 815) – Contingent Put and Call Options in Debt Instruments FASB ASU No. 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) FASB ASU No. 2016-09 Compensation – Stock Compensation (Topic 718) FASB ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing FASB ASU No. 2016-13 inancial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

NET LOSS PER COMMON SHARE (Tabl

NET LOSS PER COMMON SHARE (Tables)	6 Months Ended
	Jun. 30, 2016
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, 2016 2015 2016 2015 Numerator for basic and diluted loss per share: Net loss $ (2,114 ) $ (1,767 ) $ (4,389 ) $ (4,096 ) Preferred dividends (309 ) (302 ) (657 ) (506 ) Net loss available to common shareholders $ (2,423 ) $ (2,069 ) $ (5,046 ) $ (4,602 ) Denominator for basic and dilutive loss per share – weighted-average shares outstanding 94,298,567 93,674,349 94,185,967 93,595,433 Net loss $ (0.02 ) $ (0.02 ) $ (0.05 ) $ (0.04 ) Preferred dividends (0.01 ) (0.00 ) (0.00 ) (0.01 ) Basic and diluted loss per share available to common shareholders $ (0.03 ) $ (0.02 ) $ (0.05 ) $ (0.05 )
Weighted-average securities from calculation of diluted loss per share	Potential Dilutive Securities For the Three and Six Months Ended June 30, 2016 2015 Convertible notes payable 1,209,635 — Convertible preferred stock 6,361,818 6,361,818 Stock options 5,582,136 4,041,635 Warrants 450,000 661,666 Total potential dilutive securities 13,603,589 11,065,119

SELECT BALANCE SHEET DETAILS (T

SELECT BALANCE SHEET DETAILS (Tables)	6 Months Ended
	Jun. 30, 2016
Select Balance Sheet Details Tables
Estimated acquired intangible amortization expense	Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2016 (6 months) $ 6 2017 12 2018 12 2019 12 2020 12 Thereafter 58 Totals $ 112

LINE OF CREDIT (Tables)

LINE OF CREDIT (Tables)	6 Months Ended
	Jun. 30, 2016
Line Of Credit Tables
Line of Credit	($ in thousands) June 30, 2016 December 31, 2015 Lines of Credit to related parties 8% convertible lines of credit. Face value of advances under lines of credit $1,500 at June 30, 2016 and $0 at December 31, 2015. Discount on advances under lines of credit is $109 at June 30, 2016 and $0 at December 31, 2015. Maturity date is June 30, 2017. $ 1,391 $ — Total lines of credit to related parties 1,391 — Less current portion (1,391 ) — Long-term lines of credit to related parties $ — $ —

EQUITY (Tables)

EQUITY (Tables)	6 Months Ended
	Jun. 30, 2016
Equity Tables
Summary of common stock activity	Common Stock Shares outstanding at December 31, 2015 94,070,895 Shares issued pursuant to payment of stock dividend on Series E Preferred 475,660 Shares outstanding at June 30, 2016 94,546,555
Summary of warrant activity	Warrants Weighted- Average Exercise Price Balance at December 31, 2015 450,000 $ 0.67 Granted — — Expired / Canceled — — Exercised — — Balance at June 30, 2016 450,000 $ 0.67
Summary of stock option plans activity	Options Weighted-Average Exercise Price Balance at December 31, 2015 5,376,969 $ 1.17 Granted 236,000 1.24 Expired/Cancelled (30,833) 1.33 Exercised — - Balance at June 30, 2016 5,582,136 1.18
Stock based compensation expense allocation	Three Months Ended June 30, Six Months Ended June 30, 2016 2015 2016 2015 Cost of revenue $ 5 $ 3 $ 10 $ 5 General and administrative 172 130 346 253 Sales and marketing 54 32 109 62 Research and development 49 30 100 56 Total $ 280 $ 195 $ 565 $ 376

FAIR VALUE ACCOUNTING (Tables)

FAIR VALUE ACCOUNTING (Tables)	6 Months Ended
	Jun. 30, 2016
Fair Value Accounting Tables
Fair value measurement of Assets and liability	Fair Value at June 30, 2016 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,590 1,590 — — Totals $ 1,590 1,590 — — Fair Value at December 31, 2015 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,557 $ 1,557 $ — $ — Totals $ 1,557 $ 1,557 $ — $ —

CONTINGENT LIABILITIES (Tables)

CONTINGENT LIABILITIES (Tables)	6 Months Ended
	Jun. 30, 2016
Contingent Liabilities Tables
Future minimum lease payments	($ in thousands) 2016 (6 months) $ 229 2017 $ 421 2018 $ 202 2019 $ 35 2020 and thereafter $ 44 $ 931

ORGANIZATION AND DESCRIPTION 24

ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended	6 Months Ended
	Aug. 09, 2016	Jun. 30, 2016	Jun. 30, 2016	Dec. 31, 2015	Feb. 10, 2015	Dec. 31, 2014	Jun. 30, 2014	Apr. 01, 2014	Jun. 30, 2013
State of incorporation			Delaware
LOC, amount outstanding		$ 1,391,000	$ 1,391,000
LOC borrowings during period	$ 500,000	1,500,000	1,500,000
LOC remaining borrowing capacity	3,500,000
Crocker [Member]
LOC maximum		$ 500,000	$ 500,000
Debt conversion price		$ 1.25	$ 1.25
LOC, amount outstanding		$ 250,000	$ 250,000
LOC borrowings during period	250,000	250,000
Goldman LOC [Member]
LOC maximum		$ 5,000,000	$ 5,000,000		$ 3,050,000	$ 5,000,000	$ 3,500,000	$ 3,000,000	$ 2,500,000
Debt conversion price		$ 1.25	$ 1.25			$ 2.25	$ .95
LOC, amount outstanding		$ 1,250,000	$ 1,250,000
LOC borrowings during period	$ 250,000	$ 1,250,000

SIGNIFICANT ACCOUNTING POLICI25

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Total revenues, percentage	31.00%	56.00%
Total revenues	$ 996,000	$ 1,695,000	$ 2,039,000	$ 2,687,000
Trade receivables		$ 0		$ 0
CustomerConcentrationRiskMember
Total revenues, percentage			32.00%	42.00%
Total revenues			$ 644,000	$ 1,126,000
Trade receivables	$ 53,000		$ 53,000

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, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Numerator for basic and diluted loss per share:
Net loss	$ (2,114)	$ (1,767)	$ (4,389)	$ (4,096)
Preferred dividends	(309)	(302)	(657)	(506)
Net loss available to common shareholders	$ (2,423)	$ (2,069)	$ (5,046)	$ (4,602)
Denominator for basic and dilutive loss per share weighted-average shares outstanding	94,298,567	93,674,349	94,185,967	93,595,433
Net loss	$ (0.02)	$ (0.02)	$ (0.05)	$ (0.04)
Preferred dividends	(0.01)	0	0	(0.01)
Net loss available to common shareholders	$ (0.03)	$ (0.02)	$ (0.05)	$ (0.05)

NET LOSS PER COMMON SHARE (De27

NET LOSS PER COMMON SHARE (Details 1) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Dilutive securities
Total dilutive securities	$ 13,603,589	$ 11,065,119	$ 13,603,589	$ 11,065,119
Convertible Preferred Stock [Member]
Dilutive securities
Total dilutive securities	6,361,818	6,361,818	6,361,818	6,361,818
Stock Option [Member]
Dilutive securities
Total dilutive securities	5,582,136	4,041,635	5,582,136	4,041,635
Warrants [Member]
Dilutive securities
Total dilutive securities	450,000	661,666	450,000	661,666
Convertible Notes Payable [Member]
Dilutive securities
Total dilutive securities	$ 1,209,635		$ 1,209,635

SELECT BALANCE SHEET DETAILS (D

SELECT BALANCE SHEET DETAILS (Details) $ in Thousands	Dec. 31, 2015USD ($)
Select Balance Sheet Details Details
2016 (6 months)	$ 6
2,017	12
2,018	12
2,019	12
2,020	12
Thereafter	58
Totals	$ 112

SELECT BALANCE SHEET DETAILS (

SELECT BALANCE SHEET DETAILS (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Inventory	$ 74,000		$ 74,000		$ 46,000
Work in process	63,000		63,000		42,000
Finished goods	11,000		11,000		4,000
Reserves for obsolete and slow-moving items	3,000		3,000		3,000
Trademarks and Trade Names [Member]
Carrying amount of acquired trademarks and trade names	0		0		0
Accumulated amortization	347,000		347,000		347,000
Amortization expense	0	$ 4,000	0	$ 7,000
Patents [Member]
Accumulated amortization	547,000		547,000		542,000
Carrying amounts of patent assets	112,000		112,000		$ 117,000
Amortization expense	$ 3,000	$ 3,000	$ 5,000	$ 5,000
Weighted-average remaining life of intangible assets			10 years

LINE OF CREDIT (Details)

LINE OF CREDIT (Details) - USD ($)	Aug. 09, 2016	Jun. 30, 2016	Dec. 31, 2015
Line Of Credit Details
Total Line of Credit		$ 1,391,000
Less current portion	$ (2,000,000)	(1,391,000)
Long-term Line of credit to related parties
Line of credit interest rate		8.00%
Line of credit discount		$ 109,000	$ 0

LINE OF CREDIT (Details Narrati

LINE OF CREDIT (Details Narratives) - USD ($)	1 Months Ended	3 Months Ended	6 Months Ended
	Aug. 09, 2016	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015	Feb. 10, 2015	Dec. 31, 2014	Jun. 30, 2014	Apr. 01, 2014	Jun. 30, 2013
Line of credit agreement amount		$ 1,391,000	$ 1,391,000
Proceeds from LOC			1,500,000	$ 750,000
Repayment of principal				350,000
Beneficial conversion feature debt discount			146,000
Amortization of debt discount			385,000
LOC borrowings during period	$ 500,000	1,500,000	1,500,000
LOC remaining borrowing capacity	3,500,000
Crocker [Member]
Line of credit agreement amount		250,000	250,000
Borrowing capacity		$ 500,000	$ 500,000
Conversion share price		$ 1.25	$ 1.25
Exercise price		$ 2.25	$ 2.25
LOC borrowings during period	250,000	$ 250,000
Goldman LOC [Member]
Line of credit agreement amount		1,250,000	$ 1,250,000
Borrowing capacity		$ 5,000,000	5,000,000			$ 3,050,000	$ 5,000,000	$ 3,500,000	$ 3,000,000	$ 2,500,000
Proceeds from LOC			750,000
Repayment of principal			350,000
Beneficial conversion feature expense			385,000
Deferred Financing Fee Accumulated Amortization			$ 24,000	$ 41,000
Line of credit convertible into shares of stock							$ 2,500,000	$ 2,500,000
Conversion share price		$ 1.25	$ 1.25				$ 2.25	$ .95
Exercise price								$ 2.25
Warrant issued								177,778		1,052,632
Deferred financing fee										$ 127,000
Preferred shares issued in payment of debt				1,978
Principal repaid in shares				$ 1,950,000
Accrued interest repaid				$ 28,000
LOC borrowings during period	$ 250,000	$ 1,250,000

EQUITY (Details)

EQUITY (Details)	6 Months Ended
	Jun. 30, 2016shares
Equity Details
At beginning of period	94,070,895
Shares issued pursuant to payment of stock dividend on Series E Preferred	475,660
At end of period	94,546,555

EQUITY (Details 1)

EQUITY (Details 1) - Warrants [Member]	6 Months Ended
	Jun. 30, 2016$ / sharesshares
Begining Balance | shares	450,000
Granted | shares
Expired/Cancelled | shares
Exercised | shares
Ending Balance | shares	450,000
Begining Balance, Weighted-Average Exercise Price | $ / shares	$ .67
Granted, Weighted-Average Exercise Price | $ / shares
Expired/Cancelled, Weighted-Average Exercise Price | $ / shares
Exercised, Weighted-Average Exercise Price | $ / shares
Ending Balance, Weighted-Average Exercise Price | $ / shares	$ .67

EQUITY (Details 2)

EQUITY (Details 2) - Stock Option Plan [Member]	6 Months Ended
	Jun. 30, 2016$ / sharesshares
Begining Balance | shares	5,376,969
Granted | shares	236,000
Expired/Cancelled | shares	(30,833)
Exercised | shares
Ending Balance | shares	5,582,136
Begining Balance, Weighted-Average Exercise Price | $ / shares	$ 1.17
Granted, Weighted-Average Exercise Price | $ / shares	1.24
Expired/Cancelled, Weighted-Average Exercise Price | $ / shares	1.33
Exercised, Weighted-Average Exercise Price | $ / shares
Ending Balance, Weighted-Average Exercise Price | $ / shares	$ 1.18

EQUITY (Details 3)

EQUITY (Details 3) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Stock based compensation, expense	$ 280	$ 195	$ 565	$ 376
Cost of Revenue [Member]
Stock based compensation, expense	5	3	10	5
General and Administrative Expense [Member]
Stock based compensation, expense	172	130	346	253
Sales and marketing [Member]
Stock based compensation, expense	54	32	109	62
Research and Development Expense [Member]
Stock based compensation, expense	$ 49	$ 30	$ 100	$ 56

EQUITY (Details Narratives)

EQUITY (Details Narratives) - USD ($)	1 Months Ended			3 Months Ended		6 Months Ended
	May 31, 2016	Sep. 30, 2015	Dec. 31, 2014	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Preferred shares designated				4,000,000		4,000,000
Dividend payment						475,660
Warrants outstanding				450,000		450,000
Intrinsic value, warrants outstanding				$ 231,000		$ 231,000
Intrinsic value, options exercisable				1,201,000		1,201,000
Intrinsic value, options outstanding				1,230,000		1,230,000
Unrecognized compensation cost unvested options				1,556,000		$ 1,556,000
Weighted-average grant-date per share fair value of options granted						$ 0.78
Recognition period nonvested stock options						2 years 1 month 6 days
Compensation expense				233,000	$ 475,000	$ 141,000	$ 269,000
Directors [Member]
Shares of common stock issued for services	16,000	144,000	94,116
Directors [Member] | Sept 2015 [Member]
Compensation expense				44,000		90,000
Directors [Member] | May 2015 [Member]
Compensation expense				$ 3,000
Directors [Member] | Dec 2014 [Member]
Compensation expense						$ 54,000
Series B Preferred Stock [Member]
Preferred outstanding				239,400		239,400		239,400
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				12,000		12,000		12,000
Preferred shares designated				12,000		12,000
Preferred par value				$ 0.01		$ 0.01
Undeclared dividends				$ 0		$ 0		$ 240,000
Private placement share price				$ 1,000		$ 1,000
Dividend payment						250,743

RELATED PARTY TRANSACTIONS (Det

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended	6 Months Ended
	Aug. 09, 2016	Jun. 30, 2016	Jun. 30, 2016
LOC borrowings during period	$ 500,000	$ 1,500,000	$ 1,500,000
Crocker [Member]
LOC borrowings during period	250,000	250,000
Goldman LOC [Member]
LOC borrowings during period	$ 250,000	$ 1,250,000

FAIR VALUE ACCOUNTING (Details)

FAIR VALUE ACCOUNTING (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Assets:
Pension assets	$ 1,590	$ 1,557
Totals	1,590	1,557
Fair Value, Inputs, Level 1 [Member]
Assets:
Pension assets	1,590	1,557
Totals	1,590	1,557
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, 2016USD ($)
Contingent Liabilities Details
2016 (9 months)	$ 229
2,017	421
2,018	202
2,018	35
2019 and thereafter	44
Total	$ 931

CONTINGENT LIABILITIES (Detai40

CONTINGENT LIABILITIES (Details Narratives) - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Rental expense	$ 242,000	$ 227,000
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

SUBSEQUENT EVENTS (Details Narr

SUBSEQUENT EVENTS (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended	6 Months Ended
	Aug. 09, 2016	Jun. 30, 2016	Jun. 30, 2016	Dec. 31, 2015
LOC borrowings during period	$ 500,000	$ 1,500,000	$ 1,500,000
Line of Credit, amount payable	2,000,000	1,391,000	$ 1,391,000
LOC remaining borrowing capacity	3,500,000
Crocker [Member]
LOC borrowings during period	250,000	250,000
Goldman LOC [Member]
LOC borrowings during period	$ 250,000	$ 1,250,000