STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2011

Stockholders Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE I – STOCKHOLDERS’ EQUITY

[1]          Stock option plans: The Company currently has two option plans, the Fiscal 2000 Non-statutory Stock Option Plan (the “2000 Plan”) and the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”) (and together the “Plans”). Both Plans have been adopted by the Company’s Board of Directors and approved by shareholders. The 2000 Plan provides for the granting of options to purchase up to 1,000,000 common shares and the 2001 Plan provides for granting of options to purchase up to 4,000,000 common shares. Options granted under the Plans have lives of 10 years and vest over periods from 0 to 4 years. These Plans are administered by the Compensation/Option Committee of the Board of Directors, which determines the terms of options granted, including the exercise price, the number of shares subject to the option and the terms and conditions of exercise. Both the 2000 Plan and the 2001 Plan have options issued, however, only the 2001 Plan has options available for future issuance.

[2]          Stock options: During Fiscal 2011 and Fiscal 2010, the Company issued options to purchase 50,000 and 325,000 shares respectively, of common stock under the 2001 Plan:

Fiscal 2011 Stock Option Grant

On July 1, 2011, the Company issued an option grant under the 2001 Plan to purchase 50,000 shares of common stock to the Company’s President and Chairman of the Board Edmund M. Jaskiewicz (“Jaskiewicz”) at an exercise price of $0.12, the closing price of the Company’s common shares on the date of the grant. The option grant was immediately exercisable. The fair value of this stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 3.22%, expected life of 10 years; and stock price volatility of 91%. The value of this stock option grant totaled $6,000 and the Company recognized this share-based payment expense fully in the third quarter of Fiscal 2011.

The options were issued to Mr. Jaskiewicz as the third and final stock option grant representing compensation for his execution of an Agreement of Subordination and Assignment (“Subordination Agreement”) required as a condition to the Rosenthal Line of Credit. The first stock option grant was issued to Jaskiewicz in July 2009 when the Subordination Agreement was executed, and the second stock option grant was issued to Jaskiewicz in July 2010 (see below). The Subordination Agreement was related to $124,000 owed to Jaskiewicz by the Company as of June 29, 2009 (the “Jaskiewicz Debt”). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Rosenthal Line of Credit and no payment may be accepted or retained by Jaskiewicz unless and until the Company has paid and satisfied in full any obligations to Rosenthal. Furthermore, the Jaskiewicz Debt was assigned and transferred to Rosenthal as collateral for the Rosenthal Line of Credit.

Fiscal 2010 Stock Option Grants

On December 31, 2010, the Company issued options to purchase 275,000 shares of common stock under the 2001 Plan to 4 members of senior management and 8 other employees of the Company at an exercise price of $0.09 (the closing price of the Company’s common shares on the date of the grant). These option grants vest 100% on the one-year anniversary of the date of the grant. The fair value of these stock option grants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 3.29%, expected life of 10 years; and stock price volatility of 86%. The value of these grants totaled $25,000 and the Company recognized this share-based payment expense over the required service period of one year; therefore, the expense was recognized fully in Fiscal 2011.

The remaining 50,000 options issued in Fiscal 2010 under the 2001 Plan were issued to Jaskiewicz on July 1, 2010 A s the second option grant representing compensation for his execution of the Subordination Agreement. The exercise price of the stock option was $0.07 (the closing price of the Company’s common shares on the date of the grant. The option grant was immediately exercisable. The fair value of the Jaskiewicz grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 3.01%, expected life of 10 years; and stock price volatility of 80%. The value of this stock option grant totaled $3,000 and the Company recognized this share-based payment expense fully in Fiscal 2010.

Fiscal 2009 Stock Option Grant

During the year ended December 31, 2009 (“Fiscal 2009”), the Company issued options to purchase 550,000 shares of common stock under the 2001 Plan:

As a condition to the Rosenthal Line of Credit closing, the Company’s Chief Executive Officer, Stan Cipkowski (“Cipkowski”) was required to execute a Validity Guarantee (the “Validity Guarantee”). Under the Validity Guarantee, Cipkowski provides representations and warranties with respect to the validity of the Company’s receivables and guarantees the accuracy of the Company’s reporting to Rosenthal related to the Company’s receivables and inventory. The Validity Guarantee places Cipkowski’s personal assets at risk in the event of a breach of such representations, warranties and guarantees. As part of the compensation for his execution of the Validity Guarantee, on July 1, 2009, Cipkowski was awarded an option grant representing 500,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.20, the closing price of the Company’s common shares on the date of the grant. The option grant vests over three years in equal installments.

The calculated fair value of the Cipkowski options was $0.156 per share. The fair value of the Cipkowski option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 4.34%, expected life of 10 years; and stock price volatility of 69%. The value of the Cipkowski grant totaled $78,000, which the Company will recognize in share-based payment expense amortized over the required service period of 3 years. The Company recognized $26,000 in share-based payment expense for this grant in Fiscal 2011 and $26,000 in share-based payment expense in Fiscal 2010. As of December 31, 2011, there was $13,000 in unrecognized expense and 6 months remaining.

Stock option activity for Fiscal 2011 and Fiscal 2010 is summarized as follows: (the figures contained within the tables below have been rounded to the nearest thousand)

	Year Ended December 31, 2011					Year Ended December 31, 2010
	Shares			Weighted Average Exercise Price		Shares			Weighted Average  Exercise Price
Options outstanding at beginning of year		3,437,000		$	0.82		3,572,000		$	0.96
Granted		50,000		$	0.13		325,000		$	0.09
Exercised		0			NA		0			NA
Cancelled/expired		(788,000	)	$	0.97		(460,000	)	$	1.40
Options outstanding at end of year		2,699,000		$	0.76		3,437,000		$	0.82
Options exercisable at end of year		2,529,000		$	0.80		2,827,000		$	0.96

The following table presents information relating to stock options outstanding as of December 31, 2011:

	Options Outstanding						Options Exercisable
			Weighted		Weighted				Weighted
			Average		Average				Average
Range of Exercise			Exercise		Remaining				Exercise
Price	Shares		Price		Life in Years		Shares		Price
$0.07 - $0.85		966,000	$	0.19		7.92		796,000	$	0.18
$0.86 - $1.10		1,373,000	$	1.03		2.02		1,373,000	$	1.03
$1.11 - $1.49		292,000	$	1.14		1.03		292,000	$	1.14
$1.50 - $2.50		68,000	$	1.75		1.88		68,000	$	1.75
TOTAL		2,699,000	$	0.76		4.02		2,529,000	$	0.80

As of December 31, 2011 there were 48,500 options issued and outstanding under the 2000 Plan and 2,650,080 options issued and outstanding under the 2001 Plan, for a total of 2,698,580 options issued and outstanding as of December 31, 2011. Of the total options issued and outstanding, 2,528,580 are fully vested as of December 31, 2011. Intrinsic value of vested options as of December 31, 2011 was insignificant. As of December 31, 2011, there were 1,066,920 options available for issuance under the 2001 Plan.

[3]          Warrants: As of December 31, 2011 and December 31, 2010, there were 75,000 warrants outstanding.

In connection with their services as placement agent in the Company’s Series A Debenture offering, on July 17, 2008, the Company issued Cantone Research, Inc. (“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, and on August 4, 2008 issued Cantone a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share. All warrants issued to Cantone were immediately exercisable upon issuance. The closing price of the Company’s common shares was $0.37 and $0.40 on July 17, 2008 and August 4, 2008, respectively. The July 17, 2008 warrants were valued using the Black Scholes pricing model and the following assumptions, dividend yield of zero, volatility of 46.0%, risk free interest rate of 4.7%, and expected life of 4 years. The August 4, 2008 warrants were valued using the Black Scholes pricing model and the following assumptions, dividend yield of zero, volatility of 46.1%, risk free interest rate of 4.6% and expected life of 4 years. The total value of the Cantone warrants was $12,000, which was recognized as financing costs and is being amortized over the term of the Series A Debentures, with $3,000 in expense being recognized in both Fiscal 2011 and Fiscal 2010. As of December 31, 2011, there was $2,000 in unrecognized expense and 7 months remaining.