Line of Credit and Debt	9 Months Ended
Sep. 30, 2011
Line of Credit and Debt	Note D – Line of Credit and Debt Rosenthal and Rosenthal, Inc. (“Rosenthal”) Line of Credit We have entered into a Financing Agreement (the “Financing Agreement”) with Rosenthal. Under the Financing Agreement, Rosenthal provides the Company with up to $1,500,000 under a revolving secured line of credit (“Rosenthal Line of Credit”). The Rosenthal Line of Credit is collateralized by a first security interest in all of the Company’s accounts receivables, inventory, and intellectual property, and a second security interest in our machinery and equipment, leases, leasehold improvements, furniture and fixtures. The maximum availability of $1,500,000 is subject to an availability formula based on certain percentages of accounts receivable and inventory, and elements of the availability formula are subject to periodic review and revision by Rosenthal. Under the Financing Agreement, we pay Rosenthal an administrative fee of $1,500 per month and an annual fee of $15,000. There were additional administrative fees paid that totaled $23,000 and $9,000 in the nine months ended September 30, 2011 and September 30, 2010, respectively. The additional administrative fees paid during the three months ended September 30, 2011 and September 30, 2010 were $7,000 and $1,000, respectively. Under the Financing Agreement, interest is payable monthly. Interest is charged at variable rates (based on the Prime Rate), with minimum monthly interest of $4,000. We incurred $42,000 in interest expense in the nine months ended September 30, 2011 and $40,000 in the nine months ended September 30, 2010. Interest expense in the three months ended September 30, 2011 and September 30, 2010 were $14,000 and $12,000, respectively. So long as any obligations are due under the Rosenthal Line of Credit, we must maintain certain working capital and tangible net worth requirements at the end of each fiscal quarter. Under the Financing Agreement, tangible net worth is defined as (a) the aggregate amount of all Company assets (in accordance with U.S. GAAP), excluding such other assets as are properly classified as intangible assets under U.S. GAAP, less (b) the aggregate amount of liabilities (excluding liabilities that are subordinate to Rosenthal). Pursuant to an amendment to the Financing Agreement effective March 31, 2011, the tangible net worth requirement was lowered from $4,000,000 to $2,750,000; the working capital requirement of not less than $2,000,000 remained unchanged by the amendment. As of the date of this report, we are not in compliance with the working capital requirement under the Financing Agreement however we are in the process of entering into an amendment to the Financing Agreement with Rosenthal that would lower the working capital covenant. Failure to comply with these working capital and tangible net worth requirements in the future could constitute an event of default and all amounts outstanding, at Rosenthal’s option, could be immediately due and payable without notice or demand. Upon the occurrence of any such default, in addition to other remedies provided under the Financing Agreement, we could be required to pay to Rosenthal a charge at the rate of the Over-Advance Rate plus 3% per annum on the outstanding balance from the date of default until the date of full payment of all amounts to Rosenthal. However, in no event could the default rate exceed the maximum rate permitted by law. The Rosenthal Line of Credit is payable on demand and Rosenthal may terminate the Financing Agreement at any time by giving the Company 45 days advance written notice. The Financing Agreement terminates on May 31, 2012. If we elect to terminate the Financing Agreement prior to the expiration date, we will pay to Rosenthal a fee of 1% of the Maximum Availability given such termination would be provided after the second anniversary of the Closing Date. The amount outstanding on the Rosenthal Line of Credit at September 30, 2011 was $520,000, with $396,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $124,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $197,000, for a total Loan Availability of $717,000 as of September 30, 2011. The amount outstanding on the Rosenthal Line of Credit at December 31, 2010 was $493,000, with $357,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $136,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $177,000, for a total Loan Availability of $676,000 as of December 31, 2010. Upon entering the Financing Agreement with Rosenthal, we incurred $41,000 in costs. These costs are being amortized over the term of the Rosenthal Line of Credit. We amortized $11,000 of these costs during each of the nine months ended September 30, 2011 and September 30, 2010. We amortized $4,000 of these costs during each of the quarters ended September 30, 2011 and September 30, 2010. The unamortized balance of these costs was $9,000 as of September 30, 2011 and $20,000 as of December 31, 2010. First Niagara Bank Mortgage Consolidation Loan (“Mortgage Consolidation Loan”) On February 23, 2011, we amended and extended our Mortgage Consolidation Loan with First Niagara Bank (“First Niagara”). The amended Mortgage Consolidation Loan has a maturity date of March 1, 2013, and has a 6-year (72 month) amortization. The principal amount of the amended Mortgage Consolidation Loan is $815,000 with a fixed interest rate of 8.25%. The monthly payment of principal and interest is $14,000 and payments commenced on March 1, 2011. We were required to make a $15,000 principal payment at the time of closing of the amended Mortgage Consolidation Loan. We also incurred approximately $2,000 in costs associated with this amendment, which were legal costs incurred by First Niagara and passed on to the Company. The unamortized balance of these costs was $1,000 as of September 30, 2011. The amended Mortgage Consolidation Loan continues to be secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. All other terms of the Mortgage Consolidation Loan remain unchanged, including compliance with a covenant (measured monthly) to maintain a certain level of liquidity (defined as any combination of cash, marketable securities or borrowing availability under one or more credit facilities other than the Mortgage Consolidation Loan). As of the date of this report, we are in compliance with this covenant. The balance on the Mortgage Consolidation Loan was $753,000 at September 30, 2011 and $850,000 at December 31, 2010. Interest expense recognized during the nine months ended September 30, 2011 was $50,000 and $18,000 for the nine months ended September 30, 2010. Interest expense recognized during the three months ended September 30, 2011 was $16,000 and interest expense recognized was $18,000 for the three months ended September 30, 2010. Copier Leases In May 2007, we purchased a copier through an equipment lease with RICOH in the amount of $17,000. The term of the lease is five years with an interest rate of 14.11%. The amount outstanding on this lease was $3,000 at September 30, 2011 and $6,000 at December 31, 2010. In October 2010, we purchased a copier through an equipment lease with Marlin Leasing in the amount of $4,000. The term of the lease is three years with an interest rate of 14.46%. The amount outstanding on this lease was $3,000 at September 30, 2011 and $4,000 at December 31, 2010. Debenture Financing In August 2008, we completed an offering of Series A Debentures and received gross proceeds of $750,000. The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees. The Series A Debentures accrue interest at a rate of 10% per annum (payable by the Company semi-annually) and mature on August 1, 2012. As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, we issued Cantone a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the date of closing) and a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Debentures completion date). All warrants issued to Cantone were immediately exercisable upon issuance. We registered the common shares underlying the Series A Debentures in a registration statement on Form S-3 filed with the SEC on April 15, 2009 and amended on May 5, 2009. On June 10, 2009, the SEC issued a notice of effectiveness related to this Form S-3, as amended. We incurred $131,000 in expenses related to the offering, including $12,000 in expense related to warrants issued to Cantone. We amortized $24,000 of expense related to these debt issuance costs in both the nine months ended September 30, 2011 and September 30, 2010, of which just over $2,000 was share based payment expense related to the Cantone warrants. We amortized $8,000 of expense related to these debt issuance costs in both the three months ended September 30, 2011 and September 30, 2010, of which less than $1,000 was share based payment expense related to the Cantone warrants. The unamortized balance was $27,000 as of September 30, 2011 and $52,000 as of December 31, 2010. We also had accrued interest expense related to the Series A Debentures of $12,000 at September 30, 2011 and $31,000 December 31, 2010. The Company recognized $56,000 in interest expense during both the nine months ended September 30, 2011 and September 30, 2010. The Company recognized $19,000 in interest expense during both the three months ended September 30, 2011 and September 30, 2010.

Note D – Line of Credit and Debt

Rosenthal and Rosenthal, Inc. (“Rosenthal”) Line of Credit

We have entered into a Financing Agreement (the “Financing Agreement”) with Rosenthal. Under the Financing Agreement, Rosenthal provides the Company with up to $1,500,000 under a revolving secured line of credit (“Rosenthal Line of Credit”). The Rosenthal Line of Credit is collateralized by a first security interest in all of the Company’s accounts receivables, inventory, and intellectual property, and a second security interest in our machinery and equipment, leases, leasehold improvements, furniture and fixtures. The maximum availability of $1,500,000 is subject to an availability formula based on certain percentages of accounts receivable and inventory, and elements of the availability formula are subject to periodic review and revision by Rosenthal. Under the Financing Agreement, we pay Rosenthal an administrative fee of $1,500 per month and an annual fee of $15,000. There were additional administrative fees paid that totaled $23,000 and $9,000 in the nine months ended September 30, 2011 and September 30, 2010, respectively. The additional administrative fees paid during the three months ended September 30, 2011 and September 30, 2010 were $7,000 and $1,000, respectively. Under the Financing Agreement, interest is payable monthly. Interest is charged at variable rates (based on the Prime Rate), with minimum monthly interest of $4,000. We incurred $42,000 in interest expense in the nine months ended September 30, 2011 and $40,000 in the nine months ended September 30, 2010. Interest expense in the three months ended September 30, 2011 and September 30, 2010 were $14,000 and $12,000, respectively.

So long as any obligations are due under the Rosenthal Line of Credit, we must maintain certain working capital and tangible net worth requirements at the end of each fiscal quarter. Under the Financing Agreement, tangible net worth is defined as (a) the aggregate amount of all Company assets (in accordance with U.S. GAAP), excluding such other assets as are properly classified as intangible assets under U.S. GAAP, less (b) the aggregate amount of liabilities (excluding liabilities that are subordinate to Rosenthal). Pursuant to an amendment to the Financing Agreement effective March 31, 2011, the tangible net worth requirement was lowered from $4,000,000 to $2,750,000; the working capital requirement of not less than $2,000,000 remained unchanged by the amendment. As of the date of this report, we are not in compliance with the working capital requirement under the Financing Agreement however we are in the process of entering into an amendment to the Financing Agreement with Rosenthal that would lower the working capital covenant. Failure to comply with these working capital and tangible net worth requirements in the future could constitute an event of default and all amounts outstanding, at Rosenthal’s option, could be immediately due and payable without notice or demand. Upon the occurrence of any such default, in addition to other remedies provided under the Financing Agreement, we could be required to pay to Rosenthal a charge at the rate of the Over-Advance Rate plus 3% per annum on the outstanding balance from the date of default until the date of full payment of all amounts to Rosenthal. However, in no event could the default rate exceed the maximum rate permitted by law. The Rosenthal Line of Credit is payable on demand and Rosenthal may terminate the Financing Agreement at any time by giving the Company 45 days advance written notice.

The Financing Agreement terminates on May 31, 2012. If we elect to terminate the Financing Agreement prior to the expiration date, we will pay to Rosenthal a fee of 1% of the Maximum Availability given such termination would be provided after the second anniversary of the Closing Date.

The amount outstanding on the Rosenthal Line of Credit at September 30, 2011 was $520,000, with $396,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $124,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $197,000, for a total Loan Availability of $717,000 as of September 30, 2011.

The amount outstanding on the Rosenthal Line of Credit at December 31, 2010 was $493,000, with $357,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $136,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $177,000, for a total Loan Availability of $676,000 as of December 31, 2010.

Upon entering the Financing Agreement with Rosenthal, we incurred $41,000 in costs. These costs are being amortized over the term of the Rosenthal Line of Credit. We amortized $11,000 of these costs during each of the nine months ended September 30, 2011 and September 30, 2010. We amortized $4,000 of these costs during each of the quarters ended September 30, 2011 and September 30, 2010. The unamortized balance of these costs was $9,000 as of September 30, 2011 and $20,000 as of December 31, 2010.

First Niagara Bank Mortgage Consolidation Loan (“Mortgage Consolidation Loan”)

On February 23, 2011, we amended and extended our Mortgage Consolidation Loan with First Niagara Bank (“First Niagara”). The amended Mortgage Consolidation Loan has a maturity date of March 1, 2013, and has a 6-year (72 month) amortization. The principal amount of the amended Mortgage Consolidation Loan is $815,000 with a fixed interest rate of 8.25%. The monthly payment of principal and interest is $14,000 and payments commenced on March 1, 2011. We were required to make a $15,000 principal payment at the time of closing of the amended Mortgage Consolidation Loan. We also incurred approximately $2,000 in costs associated with this amendment, which were legal costs incurred by First Niagara and passed on to the Company. The unamortized balance of these costs was $1,000 as of September 30, 2011. The amended Mortgage Consolidation Loan continues to be secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. All other terms of the Mortgage Consolidation Loan remain unchanged, including compliance with a covenant (measured monthly) to maintain a certain level of liquidity (defined as any combination of cash, marketable securities or borrowing availability under one or more credit facilities other than the Mortgage Consolidation Loan). As of the date of this report, we are in compliance with this covenant.

The balance on the Mortgage Consolidation Loan was $753,000 at September 30, 2011 and $850,000 at December 31, 2010. Interest expense recognized during the nine months ended September 30, 2011 was $50,000 and $18,000 for the nine months ended September 30, 2010. Interest expense recognized during the three months ended September 30, 2011 was $16,000 and interest expense recognized was $18,000 for the three months ended September 30, 2010.

Copier Leases

In May 2007, we purchased a copier through an equipment lease with RICOH in the amount of $17,000. The term of the lease is five years with an interest rate of 14.11%. The amount outstanding on this lease was $3,000 at September 30, 2011 and $6,000 at December 31, 2010.

In October 2010, we purchased a copier through an equipment lease with Marlin Leasing in the amount of $4,000. The term of the lease is three years with an interest rate of 14.46%. The amount outstanding on this lease was $3,000 at September 30, 2011 and $4,000 at December 31, 2010.

Debenture Financing

In August 2008, we completed an offering of Series A Debentures and received gross proceeds of $750,000. The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees.

The Series A Debentures accrue interest at a rate of 10% per annum (payable by the Company semi-annually) and mature on August 1, 2012. As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, we issued Cantone a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the date of closing) and a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Debentures completion date). All warrants issued to Cantone were immediately exercisable upon issuance. We registered the common shares underlying the Series A Debentures in a registration statement on Form S-3 filed with the SEC on April 15, 2009 and amended on May 5, 2009. On June 10, 2009, the SEC issued a notice of effectiveness related to this Form S-3, as amended.

We incurred $131,000 in expenses related to the offering, including $12,000 in expense related to warrants issued to Cantone. We amortized $24,000 of expense related to these debt issuance costs in both the nine months ended September 30, 2011 and September 30, 2010, of which just over $2,000 was share based payment expense related to the Cantone warrants. We amortized $8,000 of expense related to these debt issuance costs in both the three months ended September 30, 2011 and September 30, 2010, of which less than $1,000 was share based payment expense related to the Cantone warrants. The unamortized balance was $27,000 as of September 30, 2011 and $52,000 as of December 31, 2010. We also had accrued interest expense related to the Series A Debentures of $12,000 at September 30, 2011 and $31,000 December 31, 2010. The Company recognized $56,000 in interest expense during both the nine months ended September 30, 2011 and September 30, 2010. The Company recognized $19,000 in interest expense during both the three months ended September 30, 2011 and September 30, 2010.