LONG-TERM DEBT

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Long-term Debt [Text Block]

NOTE E – LONG-TERM DEBT

Long-term debt consisted of the following:

	December 31, 2012		December 31, 2011
First Niagara:
Mortgage payable in equal monthly installments of $14,000 including interest at 8.25% through March 1, 2013 (“Maturity”) with a final lump sum payment representing the entire unpaid balance of principal, plus accrued interest at Maturity, collateralized by the building, land and personal property(1)	$	608,000	$	725,000
RICOH:
Capital lease payable in equal monthly installment of $390 including interest at 14.11% through May 1, 2012		0		3,000
MARLIN:
Capital lease payable in equal monthly installment of $147 including interest at 14.46% through September 1, 2013		1,000		2,000
Debenture financing(2):
$645,000 in principal amount of Series A Debentures; interest at 15% per annum from August 1, 2012 through December 31, 2012, and 10% from January 1, 2012 through July 31, 2012 and in the year ended December 31, 2011, payable quarterly with first payment due November 1, 2012; maturity date of August 1, 2013		645,000		750,000
Bridge Loan with Cantone Asset Management, LLC:
Interest rate of 15% payable upon loan maturity; maturity date of August 1, 2013.		150,000		0
		1,404,000		1,480,000
Less current portion		1,404,000		(872,000	)
Non-current portion	$	0	$	608,000

(1) The mortgage through First Niagara was refinanced and extended on March 8, 2013.

(2) The original debt with the Series A Debenture Holders was $750,000, with an interest rate of 10% per annum. It was payable semi-annually in August and February of each year with the first payment due February 1, 2009 and a maturity date of August 1, 2012. The Series A Debentures were amended and extended on July 31, 2012 and the terms noted in the table above are the revised terms of the Series A Debentures. Even after the amendment and extension, the Series A Debentures remained classified as a current liability given their maturity date of August 1, 2013.

At December 31, 2012, the following are the maturities of long-term debt for each of the next five years:

2013	$	1,404,000
2014		0
2015		0
2016		0
2017		0
	$	1,404,000

FIRST NIAGARA: MORTGAGE CONSOLIDATION LOAN

On December 17, 2009, we closed on a refinancing and consolidation of our existing real estate mortgage and term note with First Niagara (the “Mortgage Consolidation Loan”). The Mortgage Consolidation Loan was secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. We had to comply with a covenant to maintain Liquidity of at least $50,000 (Liquidity is defined as any combination of cash, marketable securities or borrowing availability under one or more credit facilities other than the Mortgage Consolidation Loan), and we maintained compliance with this covenant through the term of the Mortgage Consolidation Loan.

The annual interest rate of the Mortgage Consolidation Loan was fixed at 8.75%. The monthly payment of principal and interest was $16,125. Accrued interest was paid at closing totaling $7,000. In addition, we were required to make a $25,000 principal payment at the time of closing on the prior existing Term Note. We incurred approximately $28,000 in costs associated with the Mortgage Consolidation Loan, which were included in prepaid expenses and other current assets, and were amortized over the term of the Mortgage Consolidation Loan. For the year ended December 31, 2011 we amortized the final $2,000 of these costs. Payments commenced on the Mortgage Consolidation Loan on February 1, 2010, and the loan matured on January 1, 2011.

On February 23, 2011, we amended and extended the Mortgage Consolidation Loan. 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. These costs were fully amortized as of September 30, 2012. 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 the Liquidity covenant previously discussed. As of the date of this report, we are in compliance with this covenant. The balance on the Mortgage Consolidation Loan was $608,000 and $725,000 for the years ended December 31, 2012 and December 31, 2011, respectively. Interest expense recognized was $56,000 and $66,000 for Fiscal 2012 and Fiscal 2011, respectively. (See Note L- Subsequent Events; Refinance/Extension of Mortgage Consolidation Loan)

RICOH

In May 2007, we purchased a copier through an equipment lease with RICOH in the amount of $17,000. The term of the lease was five years with an interest rate of 14.11%. In April 2012, we notified RICOH that we were opting to purchase the copier for $1.00 as provided in our lease. The amount outstanding on this lease was $0 at December 31, 2012 and $2,000 at December 31, 2011.

MARLIN

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$1,000 at December 31, 2012 and $2,000 at December 31, 2011.

DEBENTURE FINANCING

In August 2008, we completed an offering of Series A Debentures (“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 accrued interest at a rate of 10% per annum (payable by the Company semi-annually). 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 $19,000 of expense related to these debt issuance costs in Fiscal 2012, of which a little under $2,000 was share based payment expense related to the Cantone warrants, and $32,000 of expense in Fiscal 2011, of which just over $2,000 was share based payment expense related to the Cantone warrants.

The unamortized balance was $0 as of December 31, 2012 (as the Series A Debentures matured on August 1, 2012) and $19,000 as of December 31, 2011.

Series A Debenture Extension

The Series A Debentures matured on August 1, 2012. On July 25, 2012, we entered into a Placement Agent Agreement (the “Agent Agreement”) with Cantone. Under the terms of the Agent Agreement, Cantone acted as our exclusive placement agent in connection with an amendment of the Series A Debentures. Under the amendment, the term of Series A Debentures was extended to reflect a due date of August 1, 2013, and the interest rate during the extension period was increased from 10% to 15% per annum, due quarterly in arrears.

As compensation for their placement agent services, Cantone received a cash fee of 5% of the gross amount of existing Series A Debentures, or $37,500, and the warrants issued to Cantone (in connection with their services as placement agent in the original Series A Debenture financing) were amended to reflect a purchase price of $0.17 per share and a new term of three (3) years. Cantone also received 1% of the gross amount of Series A Debentures, or $7,500, as a non-accountable expense allowance and we reimbursed Cantone $5,000 in legal fees incurred in connection with the amendment of the Series A Debentures. We will amortize the costs (totaling $50,000) associated with the amendment of the Series A Debentures over the term of the extension (12 months).

On July 30, 2012, we entered into a Bridge Loan Agreement and Note (the “Bridge Loan”) with Cantone Asset Management, LLC (“CAM”). The Bridge Loan is in the amount of $150,000 and was used to pay $100,000 to those Holders of Series A Debentures that did not wish to amend/extend the Series A Debentures and $50,000 was used to pay placement agent fees and expenses previously indicated in the previous paragraph.

The maturity date of the Bridge Loan is August 1, 2013 and it bears simple interest in advance of 15%. In addition to the interest, on August 1, 2012, the Company instructed its transfer agent to issue CAM restricted stock of the Company equal to 10% of the gross amount of existing Series A Debentures, or $15,000 using a value of $0.17 per common share. On August 8, 2012, 88,235 restricted common shares were issued to CAM.

On July 31, 2012, we entered into an Agreement to the Series A Debenture (the “Series A Debenture Amendment”) with thirty-two of the thirty-seven holders of Series A Debentures (the “Debenture Holders”) (representing $645,000 of Series A Debentures). As previously indicated, the Series A Debenture Amendment extended the due date of the Series A Debentures to August 1, 2013 and increased the interest rate to 15% per annum, payable quarterly in arrears. All other terms of the Series A Debentures remain unchanged. Five of the Debenture Holders (representing $105,000 in Series A Debentures) did not wish to extend the Series A Debentures and we used proceeds of $100,000 from the Bridge Loan and $5,000 paid directly from the Company to pay principal amounts due to these non-extending Debenture Holders.

We recognized $93,000 and $75,000 in interest expense related to the Series A Debentures in Fiscal 2012 and Fiscal 2011, respectively. We had $26,000 and $31,000 in accrued interest expense related to the Series A Debentures at December 31, 2012 and December 31, 2011, respectively.