Stock Option Grants / Warrant Grants

9 Months Ended

Sep. 30, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note E – Stock Option Grants / Warrant Grants

Rosenthal Financing Option Grants

As a condition to the Financing Agreement with Rosenthal, our Chief Executive Officer, Stan Cipkowski (“Cipkowski”) was required to execute a Validity Guarantee (the “Validity Guarantee”) that includes 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 its 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 its Fiscal 2001 Stock Option Plan (the “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 3 years in equal installments, and the first 33% (165,000 common shares) of the grant vested on July 1, 2010, the second 33%, (165,000 common shares) vested on July 1, 2011 and the final 34% (170,000 common shares) vested on July 1, 2012. We recognized $78,000 in share-based payment expense amortized over the required service period of 3 years. We recognized $13,000 in share-based payment expense for this grant in the nine months ended September 30, 2012 and $20,000 in share-based payment expense in the nine months ended September 30, 2011. We recognized $0 in share-based payment expense for this grant in the three months ended September 30, 2012 and $6,000 in share-based payment expense in the three months ended September 30, 2011. As of September 30 2012, there was $0 in unrecognized expense with 0 months remaining.

As another condition to the Financing Agreement with Rosenthal, the Company’s President and Chairman of the Board, Edmund M. Jaskiewicz (“Jaskiewicz”) was required to execute an Agreement of Subordination and Assignment (“Subordination Agreement”) 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 was not payable, was junior in right to the Rosenthal Line of Credit and no payment could be accepted or retained by Jaskiewicz unless and until the Company 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.

As compensation for his execution of the Subordination Agreement, on July 1, 2009 Jaskiewicz was awarded an option grant representing 50,000 common shares of the Company under its 2001 Plan at an exercise price of $0.20, the closing price of the Company’s common shares on July 1, 2009. The option grant (50,000 common shares) was 100% immediately exercisable on July 31, 2009. We recognized $8,000 during the year ended December 31, 2009 in share-based payment expense related to the grant of Jaskiewicz’s options upon issuance of the grant.

On July 1, 2010 (the first anniversary of the original stock option grant date of July 1, 2009), Jaskiewicz was awarded a second option grant representing 50,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.07, the closing price of the Company’s common shares on July 1, 2010. The option grant (50,000 common shares) was 100% immediately exercisable on July 1, 2010. During the year ended December 31, 2010, we recognized $3,000 in share-based payment expense for this grant.

On July 1, 2011, (the second anniversary of the original stock option grant date of July 1, 2009), Jaskiewicz was awarded an additional option grant representing 50,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.12, the closing price of the Company’s common shares on July 1, 2011. The option grant (50,000 common shares) was 100% immediately exercisable on July 1, 2011. We recognized the full share-based payment expense of $6,000 in the three months ended September 30, 2011.

December 2010 Employee Grant

On December 31, 2010, we 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 December 31, 2010). These option grants vested 100% (275,000 common shares) on December 31, 2011. We recognized $25,000 in share-based payment expense over the required service period of one year. We recognized $0 in share-based payment expense related to these grants in the nine months ended September 30, 2012, and $20,000 of this expense in the nine months ended September 30, 2011. As of September 30, 2012, there was $0 in unrecognized expenses with 0 months remaining.

Medallion Line of Credit Stock Options

As a condition to the Medallion Line of Credit, Cipkowski and our controller J. Duncan Urquhart (“Urquhart”) were each required to execute Validity Guarantees (the “Validity Guarantees”). Under the Validity Guarantees, Cipkowski and Urquhart provide representations and warranties with respect to the validity of our receivables as well as guaranteeing the accuracy of our reporting to Medallion related to the Company’s receivables.

Cipkowski Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Cipkowski was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% on April 20, 2013 (82,500 common shares), 33% on April 20, 2014 (82,500 common shares) and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Cipkowski 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 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $4,000 in share-based payment expense in the three months ended September 30, 2012 and $8,000 in the nine months ended September 30, 2012. As of September 30, 2012, there was $37,000 in unrecognized share-based payment expense with 30 months remaining.

Urquhart Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Urquhart was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% (82,500 common shares) on April 20, 2013, 33% (82,500 common shares) on April 20, 2014 and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Urquhart 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 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $4,000 in share-based payment expense in the three months ended September 30, 2012 and $8,000 in the nine months ended September 30, 2012. As of September 30, 2012, there was $37,000 in unrecognized share-based payment expense with 30 months remaining.

Jaskiewicz Medallion Grant

As another condition to the Medallion Line of Credit, Jaskiewicz was required to execute another Subordination Agreement (“Subordination Agreement”) related to the Jaskiewicz Debt (the $124,000 currently owed to Jaskiewicz by the Company). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Medallion Line of Credit and no payment may be accepted or retained by Jaskiewicz for the Jaskiewicz Debt unless and until we have paid and satisfied in full any obligations to Medallion. As compensation for his execution of the Subordination Agreement, on April 20, 2012 Jaskiewicz was awarded an option grant representing 150,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of the Company’s common shares on April 20, 2012. The option grant vests over three (3) years in installments as follows: 33% (49,500 common shares) on April 20, 2013, 33% (49,500 common shares) on April 20, 2014 and 34% (51,000 common shares) on April 20, 2015.

The fair value of the Jaskiewicz 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 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $27,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $2,000 in share-based payment expense in the three months ended September 30, 2012 and $4,000 in share-based payment expense in the nine months ended September 30, 2012. As of September 30, 2012, there was $23,000 in unrecognized share-based payment expense with 30 months remaining.

CRI Warrants

On July 31, 2012, we issued CRI warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $0.17 per share (the closing price of the Company’s common shares on July 31, 2012) (“CRI Warrants”). The CRI warrants are exercisable through July 31, 2015 (see Part I, Item I, Note E, “Series A Debenture Extension”). The fair value of the CRI Warrants 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 1.51; expected life of 3 years; and stock price volatility of 77%. The value of the CAM Warrant is $12,000 and the Company recognized $12,000 (or the full expense) in share based payment expense in the three and nine months ended September 30, 2012.

CAM Warrants

On August 1, 2012, we issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (“CAM Warrants”). The CAM Warrants are exercisable through July 31, 2015 and have piggyback registration rights (see Part I, Item I, Note E, “Series A Debenture Extension”). The fair value of the CAM Warrants 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 1.56; expected life of 3 years; and stock price volatility of 77%. The value of the CAM Warrant is $48,000 and the Company recognized $48,000 (or the full expense) in share based payment expense in the three and nine months ended September 30, 2012.

September 2012 Employee Grants

On September 20, 2012, we issued 2 stock option grants to purchase 50,000 shares (for a total of 100,000) of the Company’s common stock to 2 non-executive employees at an exercise price of $0.18 (the closing price of the Company’s common shares on September 20, 2012). Both option grants vest over 3 years in installments as follows: 33% (33,000 common shares total) on September 20, 2013, 33% (33,000 common shares total) on September 20, 2014 and 34% (34,000 common shares total) on September 20, 2015.

We will recognize $18,000 in share-based payment expense over the vesting period of 3 years. We recognized less than $1,000 in share-based payment expense related to these grants in the three and nine months ended September 30, 2012. As of September 30, 2012, there was over $17,000 in unrecognized expenses with 35 months remaining.