STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2012

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 2012 and Fiscal 2011, the Company issued options to purchase 750,000 and 50,000 shares respectively, of common stock under the 2001 Plan:

Medallion Line of Credit Stock Options

As a condition to the Medallion Line of Credit, Stan Cipkowski, our Chief Executive Officer (“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 $11,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012 there was $34,000 in unrecognized share-based payment expense with 27 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 $11,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012, there was $34,000 in unrecognized share-based payment expense with 27 months remaining.

Jaskiewicz Medallion Grant

As another condition to the Medallion Line of Credit, Edmund M. Jaskiewicz, our President and Chairman of the Board, was required to execute another Subordination Agreement (“Subordination Agreement”) related to the Jaskiewicz Debt (the $124,000 currently owed to Jaskiewicz by the Company for legal services rendered). 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 $7,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012, there was $20,000 in unrecognized share-based payment expense with 27 months remaining.

September 2012 Employee Grants

On September 20, 2012, we issued 2 stock option grants to purchase 50,000 shares each (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 $2,000 in share-based payment expense related to these grants in Fiscal 2012. As of December 31, 2012, there was $16,000 in unrecognized expenses with 32 months remaining.

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.

In addition to the stock options issued in Fiscal 2012 and Fiscal 2011, the following stock options have been issued prior to Fiscal 2011, and have a portion of their expense recognized in Fiscal 2011:

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 vested 100% on the one-year anniversary of the date of the grant, or on December 31, 2011. 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.

Rosenthal Line of Credit Validity Guarantee Stock Options

As a condition to the Rosenthal Line of Credit closing, Cipkowski was required to execute a Validity Guarantee (the “Validity Guarantee”). Under the Validity Guarantee, Cipkowski provided 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 placed 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 vested 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 recognized in share-based payment expense amortized over the required service period of 3 years. The Company recognized $13,000 in share-based payment expense for this grant in Fiscal 2012 and $26,000 in share-based payment expense for this grant in Fiscal 2011. As of December 31, 2012, there was $0 in unrecognized expense and 0 months remaining.

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 Fiscal 2011.

Stock option activity for Fiscal 2012 and Fiscal 2011 is summarized as follows: (the figures contained within the tables below have been rounded to the nearest thousand)

	Year Ended December 31, 2012					Year Ended December 31, 2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at beginning of year		2,699,000		$	0.76		3,437,000		$	0.82
Granted		750,000		$	0.18		50,000		$	0.13
Exercised		0			NA		0			NA
Cancelled/expired		(510,000	)	$	1.06		(788,000	)	$	0.97
Options outstanding at end of year		2,939,000		$	0.56		2,699,000		$	0.76
Options exercisable at end of year		2,189,000		$	0.69		2,529,000		$	0.80

The following table presents information relating to stock options outstanding as of December 31, 2012:

	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 - $0.20		1,675,000	$	0.17		8.12		925,000	$	0.16
$0.84 - $1.09		1,054,000	$	1.04		1.56		1,054,000	$	1.04
$1.11 - $1.74		210,000	$	1.28		0.57		210,000	$	1.28
TOTAL		2,939,000	$	0.56		5.23		2,189,000	$	0.69

As of December 31, 2012 there were 23,500 options issued and outstanding under the 2000 Plan and 2,915,580 options issued and outstanding under the 2001 Plan, for a total of 2,939,080options issued and outstanding as of December 31, 2012. Of the total options issued and outstanding, 2,189,080 are fully vested as of December 31, 2012. Intrinsic value of vested options as of December 31, 2012 was insignificant. As of December 31, 2012, there were 801,420 options available for issuance under the 2001 Plan.

[3]         Warrants: As of December 31, 2012 and December 31, 2011, there were 375,000 and 75,000 warrants outstanding, respectively.

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 was amortized over the term of the Series A Debentures, with $2,000 in expense being recognized in Fiscal 2012 and $3,000 in expense being recognized in both Fiscal 2011. As of December 31, 2012, there was $0 in unrecognized expense and 0 months remaining.

The Cantone warrants were amended on July 31, 2012 in connection with the extension and amendment of the Series A Debentures; more specifically they were amended to reflect am exercise price of $0.17 per shares and a new term of three years (see Note E – Long-term Debt; Series A Debenture Extension). 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 Cantone 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 Cantone warrant is $12,000 and the Company recognized $12,000 (or the full expense) in share based payment expense in Fiscal 2012.

On August 1, 2012, we entered into a Consulting Agreement (“Consulting Agreement”) with Cantone Asset Management, LLC (“CAM”). The Consulting Agreement commenced August 1, 2012 and ends on August 1, 2013. Under the terms of the Consulting Agreement, CAM will provide the Company with financial advisory services and advice related to debt refinancing. On August 1, 2012, the Company 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) (the “CAM Warrant”). The CAM Warrant is exercisable through July 31, 2015 and has piggyback registration rights. 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 Fiscal 2012.