EMPLOYEE RETIREMENT AND PENSION PLANS

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

NOTE 10. - EMPLOYEE RETIREMENT AND PENSION PLANS

Retirement Plan - Through December 31, 2012, the Company offered a simple IRA plan as a retirement plan for eligible employees. Employees are eligible to participate in the plan if they earn at least $5,000 of compensation from the Company during the year. Eligible employees may contribute a percentage of their compensation up to a maximum of $11,500 for 2012 and 2011. The Company can elect to make a discretionary contribution to the Plan. For the years ended December 31, 2012 and 2011 the Company elected to make a matching contribution equal to the employee’s contribution up to a limit of 3% of the employee’s compensation for the year. The Company match for the year ended December 31, 2012 was $62,775 ($53,830 – 2011). The accrued liability for the simple IRA plan, including interest, was $220,783 and $159,650, as of December 31, 2012 and 2011, respectively.

Effective, January 1, 2013, the Company began offering a defined benefit 401(k) plan in place of the simple IRA plan. For 2013, 401(k) employee contribution limits are $17,500 plus a catch up contribution for those over age 50 of $5,500. The Company can elect to make a discretionary contribution to the Plan.

Defined Benefit Plan - The Company acted as sponsor for a contributory defined benefit pension plan, the O&W Plan, that was terminated by the PBGC on November 1, 2011. The O&W Plan covered all salaried and hourly employees at Osley & Whitney, Inc. (O&W) that were scheduled to work at least 1,000 hours per year. During the year ended December 31, 2001, the Company discontinued the operations of O&W and on December 30, 2002 sold all of the common stock of O&W to a third party but continued to act as sponsor for the plan. The termination of the employees' services earlier than expected resulted in a plan curtailment, accounted for in accordance with former Statement of Financial Standards Statement 88 in 2001. No future benefits will be earned by plan participants. As a result, the accumulated benefit obligation (the actuarial present value using the current salary level of the benefits earned to date by the Plan participant) and projected benefit obligation (the actuarial present value using the salary level at retirement age of the benefits earned to date by the Plan participant) are the same amount. The Plan remained in existence to pay benefits as participants qualified until it was terminated during 2011.

The Company recognizes interest, penalties, and professional fees related to the defined benefit pension plan in defined benefit plan expense if they are associated with the O&W Plan.

Background

Prior to December 30, 2002, the Company owned 100% of the common stock of O&W. On December 30, 2002, the Company sold 100% of the O&W common stock to a third party, but continued to act as the sponsor of the O&W Plan. Although the Company continued to act as the sponsor of the O&W Plan after the sale, during 2007 management determined that it had no legal obligation to do so.

During 2007, the Company submitted information to the Department of Treasury (Treasury) advocating that it had no legal obligation to act as the sponsor of the O&W Plan to ascertain whether the Treasury concurred or disagreed with this position.

At December 31, 2011, the Company had accrued amounts related to excise taxes, including late fees and interest, on unfunded contributions of approximately $480,000 due to the Treasury, which is included in current liabilities - accrued retirement and pension.

O&W Plan Terminated in 2011

During 2011, the Company entered into a settlement agreement with the PBGC with the objective of terminating the O&W Plan. On September 6, 2011, the Company received notification from the PBGC that it had executed a Settlement Agreement with the Company, effective September 1, 2011 and issued a Notice of Determination (the “PBGC Determination”) that the O&W Plan had not met the minimum funding standard required under section 412 of the Internal Revenue Code and would be unable to pay benefits when due, which PBGC Determination was a condition precedent to the Company’s obligations under the Settlement Agreement.

On October 17, 2011, in accordance with the Settlement Agreement, the Company:

· purchased 500,000 shares of its common stock from the O&W Plan for $130,000 (See note 7.);

· issued a secured promissory note in favor of the PBGC for $300,000 bearing interest at 6% per annum amortizing in quarterly payments over a seven year period (See note 6.);

· agreed to make annual future payments through December 31, 2017 equal to a portion of the Company’s “Free Cash Flow” as defined in the Settlement Agreement, not to exceed $569,999. Each annual payment is contingent upon the Company earning "Free Cash Flow" in excess of defined amounts which vary by year. No payment was due for 2012; and

· recorded a gain of $294,438 and a reduction of accumulated other comprehensive loss of $2,961,147.

The Settlement Agreement contains specific events of default and provisions for remedies upon default. The purchase price for the 500,000 shares was funded from the proceeds of the placement by the Company of a convertible note in the principal amount of $100,000 (the “Convertible Note”) to a non-affiliated accredited investor on October 4, 2011 and $30,000 of the Company's working capital.

On November 1, 2011, in accordance with the terms of the Settlement Agreement, the Company received from the PBGC the executed Trusteeship Agreement. The Trusteeship Agreement:

· terminated the O&W Plan;

· appointed the PBGC as the statutory trustee of the O&W Plan; and

· established November 30, 2001 as the termination date for the O&W Plan.

Tax Court Ruling Received in 2012

On March 30, 2012, the Company received the decision of United States Tax Court entered on March 27, 2012 (the "Decision") wherein the Court determined that the Company did not have any liability for taxes, excise taxes or penalties for the taxable years 2006 or 2007 related to the O&W Plan. As a result, during 2012, the Company recorded a reduction of $480,000 in obligations previously accrued and reflected related to excise taxes, including late fees and interest on unfunded O&W Plan contributions.

Since the PBGC terminated the O&W Plan as of November 30, 2001 and the United States Tax Court decided on March 27, 2012 that no excise taxes are due as stated herein, the Company has no further obligations to the O&W Plan, the PBGC and the Treasury other than those stated in the Settlement Agreement with the PBGC which are reflected in the accompanying consolidated financial statements.

2011 Defined Benefit Plan

During 2011, the PBGC assumed the obligation to pay benefits in connection with the termination of the O&W Plan and, as a result, the Company recorded a gain of $294,438. Defined benefit pension plan expense for 2011 of $103,822 associated with the O&W Plan consisted of periodic pension costs of $246,436, legal and professional fees of $32,500 and accrued interest and fees on unpaid excise taxes of $119,324, offset by the gain of $294,438. At December 31, 2011, the Company continued to carry current liabilities of $500,000 related to the O&W Plan and long-term obligations to the PBGC of $569,999 and issued a promissory note in favor of the PBGC for $300,000. (See note 6.)

The measurement dates used to determine the pension measurements for the pension plan was December 31, 2011. Net periodic pension cost recorded in the accompanying statements of operations includes the following components of expense (benefit) for the period through the O&W Plan termination date in 2011:

Interest cost	$	203,635
Expected return on plan assets		(90,575	)
Service cost		31,499
Actuarial loss		101,877
Net periodic pension cost	$	246,436

The following sets forth the funded status of the Plan and the amounts shown in the accompanying balance sheet at December 31, 2011:

Projected benefit obligation:
Benefit obligation at beginning of year	$	5,160,059
Interest cost		203,635
Actuarial loss		101,877
Benefits paid		(375,612	)
Termination of the O&W Plan		(5,089,959	)
Projected benefit obligation at end of year	$	0
Plan assets at fair value:
Fair value of plan assets at beginning of year	$	1,601,276
Actual return of plan assets		137,696
Benefits paid		(375,612	)
Expenses paid		(34,882	)
Transfer of assets to PBGC due to
termination of the O&W Plan		(1,328,478	)
Fair value of plan assets at end of year	$	0
Funded status (deficit)	$	(3,558,783	)
Unrecognized actuarial loss		(2,961,147	)
		(6,519,930	)
Termination of the O&W Plan		(6,519,930	)
Accrued pension cost	$	0

The major actuarial assumptions used in the calculation of the pension obligation follow (2012 assumptions are not applicable since the O&W Plan was terminated by the PBGC):

	2011
Discount rate		5.95	%
Expected return on plan assets		8.90	%
Rate of increase in compensation		N/A

The expected long-term rate of return on Plan assets assumption is determined from the Plan’s asset allocation using historical returns over the past several years and the Plan’s investment philosophy. The discount rate assumption is based on published pension liability indices and reflects the current interest rate environment.

The investment strategy was to manage the assets of the Plan to generate sufficient returns to meet the long-term liabilities while maintaining adequate liquidity to pay current benefits. This strategy was implemented by holding equity investments while investing a portion of the assets in fixed income debt securities to match the long-term nature of the liabilities. An independent fee based investment management company made all investment decisions subject to the Plan’s investment strategy. The assets were held by a separate trust company as custodian for the Plan. For equity investments, the manager implemented its defined process that focuses on the merits of individual companies allowing it to find opportunities across the globe. The process included identifying industry sector groups that met the investment strategy, profiling investment alternatives, establishing buy and sell targets based on strategy and strict pricing disciplines, and accepting only those investments that meet the strategy, pricing and Plan objectives. Investments were monitored on an ongoing basis to assure they continue to meet the strategy, pricing and Plan objectives. As of December 31, 2011, with the execution of the Settlement Agreement with the PBGC the Plan was terminated and the PBGC was appointed the trustee of the Plan.