0001014041 us-gaap:CommonStockMember 2009-01-01 2009-12-31 0001014041 us-gaap:CommonStockMember 2010-01-01 2010-12-31 0001014041 us-gaap:CommonStockMember 2011-01-01 2011-12-31 0001014041 us-gaap:RetainedEarningsMember 2011-12-31 0001014041 us-gaap:AdditionalPaidInCapitalMember 2011-12-31 0001014041 us-gaap:RetainedEarningsMember 2010-12-31 0001014041 us-gaap:AdditionalPaidInCapitalMember 2010-12-31 0001014041 us-gaap:RetainedEarningsMember 2009-12-31 0001014041 us-gaap:AdditionalPaidInCapitalMember 2009-12-31 0001014041 us-gaap:RetainedEarningsMember 2008-12-31 0001014041 us-gaap:AdditionalPaidInCapitalMember 2008-12-31 0001014041 us-gaap:CommonStockMember 2011-12-31 0001014041 us-gaap:CommonStockMember 2010-12-31 0001014041 us-gaap:CommonStockMember 2009-12-31 0001014041 us-gaap:CommonStockMember 2008-12-31 0001014041 us-gaap:RetainedEarningsMember 2011-01-01 2011-12-31 0001014041 us-gaap:RetainedEarningsMember 2010-01-01 2010-12-31 0001014041 us-gaap:RetainedEarningsMember 2009-01-01 2009-12-31 0001014041 2009-12-31 0001014041 2008-12-31 0001014041 us-gaap:AdditionalPaidInCapitalMember 2011-01-01 2011-12-31 0001014041 us-gaap:AdditionalPaidInCapitalMember 2010-01-01 2010-12-31 0001014041 us-gaap:AdditionalPaidInCapitalMember 2009-01-01 2009-12-31 0001014041 2011-12-31 0001014041 2010-12-31 0001014041 2010-01-01 2010-12-31 0001014041 2009-01-01 2009-12-31 0001014041 2011-06-30 0001014041 2012-02-24 0001014041 2011-01-01 2011-12-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares false --12-31 FY 2011 2011-12-31 10-K 0001014041 6503128 Yes Smaller Reporting Company 23232139 SRI SURGICAL EXPRESS INC No No <div> NOTE F – BONDS PAYABLE In 1999, the Company issued public bonds to fund the construction of two of its reusable processing facilities. Interest rates on the bonds adjusted based upon rates that approximate LIBOR. In October 2008, $6.0 million of the Company's bonds were tendered. The holders of the tendered bonds were paid from draws against the letters of credit under the Company's Credit Facility. Under the terms of the indentures relating to the bonds, the tendered bonds could be remarketed at any time prior to their maturity in 2014. On March 10, 2011, the $6.0 million of tendered bonds were reissued, generating approximately $6.0 million of proceeds. The proceeds were used to pay down the Company's outstanding notes payable. On July 1, 2011, the Company redeemed all of its public bonds with a principal amount of $6.6 million with funds available under the Company's Credit Facility. The bonds were redeemed at par value, therefore no gain or loss was recognized as a result of the redemption of the bonds. </div> 3155000 1420000 1727000 17369000 18619000

<div> NOTE P – THIRD QUARTER 2009 ADJUSTMENTS Reusable Surgical Product Loss and Accrued Liabilities As disclosed in the Company's third quarter 2009 Form 10-Q, as part of the Company's effort to reduce its loss and scrap costs, the Company performed additional operational reviews of its reusable surgical products usage during the third quarter ended September 30, 2009, resulting in identification of additional losses that were not known at January 1, 2009. Additionally, account analyses were conducted on accrued liability accounts resulting in identification of costs recognized in periods prior to January 1, 2009, for which a liability did not exist. The amount of the adjustments related to periods prior to January 1, 2009 that were recognized in the three month period ended September 30, 2009 resulted in an increase in cost of revenues and a decrease in selling and administrative expenses totaling approximately $591,000 and $82,000, respectively. During the three months ended September 30, 2009, the Company also recognized, in cost of revenues, reusable surgical product losses of $181,000, for costs incurred during the six months ended June 30, 2009. There was no income tax effects related to these adjustments. The above costs recognized in the three months ended September 30, 2009 that were incurred in prior periods were principally associated with reusable surgical product losses. As a result of a system error, the Company's information system did not identify certain products as lost. Reusable surgical products that are tracked using RFID technology are expensed if not returned to the Company by a customer within 210 days. However, when new tracking mechanisms were employed in an earlier period in an effort to better control the location of product, the system was not properly updated to record lost product for certain locations. As a result, the Company incurred but did not recognize losses in earlier periods resulting in the estimate of lost products being understated as discussed above. The Company reviewed the effect of the above errors on prior periods and determined that (a) the errors did not materially affect the financial statements of prior periods (which errors date back to 2005); and (b) the errors did not have a material effect on the financial statements for the first or second quarters of 2009. Because the Company also concluded that the amounts were not material to the year ending December 31, 2009, the Company recorded the adjustments during the quarter ended September 30, 2009. </div>

8768000

9156000

12117000

13569000

33664000

34298000

659000

636000

633000

61708000

64241000

<div> NOTE A – DESCRIPTION OF ORGANIZATION AND BUSINESS SRI/Surgical Express, Inc. ("SRI Surgical" or the "Company") is a supplier and reprocessor of reusable surgical linen and instrumentation to hospitals and surgery centers across the United States. The Company offers a combination of high quality reusable surgical products (including gowns, towels, drapes, basins and surgical instruments), disposable surgical products, and instruments in a comprehensive case cart management system. At ten regional facilities, the Company collects, sorts, cleans, inspects, packages, and sterilizes its reusable surgical products and instruments, and delivers daily on a just-in-time basis. The Company also provides an outsource solution for the management of hospital instrumentation and central sterilization. The Company operates in one industry segment. </div>

484000

802000

1327000

1862000

318000

525000

535000

<div> NOTE G – COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases facilities, office equipment, and distribution vehicles under non-cancelable operating leases with terms ranging from one to fifteen years. The processing facility leases contain various renewal options and escalating payments. The Company intends to exercise certain aspects of these renewal options when the initial terms expire. The vehicle leases contain contingent rentals based on mileage. Future minimum lease payments as of December 31, 2011 are as follows (in 000's):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="68%" align="center"> <tr><td width="86%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" colspan="4" nowrap="nowrap"> Years ending December 31</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2012</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,448</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2013</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,885</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2014</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,648</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2015</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,475</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2016</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,161</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Thereafter</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">859</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,476</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   Rental expense for the years ended December 31, 2011, 2010 and 2009 totaled approximately $3.8 million, $3.7 million, and $3.5 million (including contingent rentals of approximately $324,000, $313,000, and $313,000), respectively. The Company is in the process of negotiating renewals of leases that expire in 2012. Contractual Obligations The Company offers instruments pursuant to a Joint Marketing Agreement with Aesculap, Inc. ("Aesculap"). Under the terms of this agreement, Aesculap furnishes and repairs most of the surgical instruments that are delivered to customers and receives an agreed upon fee from the Company for each procedure. The Company has arrangements with Standard Textile Co., Inc. ("Standard Textile") and Forum Industries, Inc. ("Forum"), under which the Company purchases the majority of its reusable surgical linens. The Company's management believes that Aesculap, Standard Textile and Forum's prices are and will be comparable to prices available from other vendors. Standard Textile is a shareholder of the Company. If Aesculap, Standard Textile or Forum were unable to perform under these procurement arrangements, the Company would need to obtain alternate sources for its reusable surgical products. The Company is not bound to purchase any minimum quantity of products under these agreements, however, the Company is required to purchase at least fifty-percent (50%) of its annual reusable surgical linen requirements from Forum. The Company estimates that its payments under these agreements will be between $14.0 and $16.0 million in 2012. Amounts in subsequent years will be comparable, adjusted by changes in the Company's customer demand, amortization rates, product prices, and other variables affecting its business. During the years ended December 31, 2011, 2010, and 2009, the Company purchased reusable surgical linen products in the amounts of $6.9 million, $5.7 million, and $4.8 million, respectively. During the years ended December 31, 2011, 2010, and 2009, the Company incurred fees of $8.7 million, $9.4 million, and $11.3 million, respectively, for instrument usage. Under the terms of the Co-Marketing Agreement with Cardinal Health, the Company received $1.0 million and $250,000 in January 2009 and 2010, respectively, which was initially recognized in other accrued expenses in its balance sheets. The amounts received from Cardinal Health were intended to reimburse the Company for certain expenses incurred for marketing and sales, opening depots in territories not currently served by the Company, and to close its disposable products assembly plant located in Plant City, Florida, among other items. During the years ended December 31, 2010 and 2009, the Company incurred costs of $37,000 and $485,000, respectively, related to certain costs, including severance, asset disposal and other costs, associated with the closing of its disposable assembly facility in Plant City, Florida. The costs directly associated with the plant closing were applied against the payment received from Cardinal Health. Additionally, during the years ended December 31, 2010 and 2009, the Company incurred costs of $399,000 and $329,000, respectively, related to the hiring of sales and marketing professionals to support the agreement, as well as software development, and training and management sessions in an effort to support the agreement. The direct costs incurred in support of the agreement with Cardinal Health were applied against the payment received from Cardinal Health. The Company accounted for cash incentive payments under the provisions of ASC 605-50-45-13b, Revenue Recognition: Customer Payments and Incentives, which requires that consideration received from a vendor that is a reimbursement for cost incurred to sell the vendor's product be characterized as a reduction of that cost when recognized in the income statement. During 2010, W.L. Gore and Associates ("Gore"), the supplier of the barrier fabric used in the Company's Level III and Level IV surgical gowns and its Level IV drapes, notified the Company it is exiting the medical fabrics market in early 2012. As a result of its decision, Gore gave its customers the option to make advance purchases of fabric to bridge their process of transitioning to another supplier. The Company will make a substantial purchase of approximately $7.2 million of fabric pursuant to this program. During the year ended December 31, 2011, the Company purchased raw material barrier fabric from Gore in the amount of $504,000.   Management Employment Agreements The Company has employment agreements with its Chief Executive Officer and Chief Financial Officer that provide for payment of twelve months and nine months base salary, respectively, and a pro-rated bonus as severance, if involuntarily terminated by the Company. The officers are prohibited from competing with the Company during the two-year period following termination of their employment. The Company incurred a charge of approximately $238,000 in 2009 in connection with the termination agreement between the Company and a former officer. Legal Proceedings From time to time, the Company is involved in claims that arise in the ordinary course of business. The Company does not believe these proceedings, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, or cash flows. </div>

0.001

30000000

6485678

6503128

6485678

6503128

6000

7000

78355000

78096000

84051000

<div> NOTE D – NOTES PAYABLE On August 4, 2011, the Company entered into a $28.7 million Credit Facility with its existing lender, which amended its $24.3 million credit facility that was set to mature on August 7, 2011. The Credit Facility includes a $3.7 million term loan on its Tampa headquarters, and a revolving loan of up to $25.0 million for working capital, letters of credit, capital expenditures and other purposes. Actual amounts available under the revolving loan are determined by a defined borrowing base calculation. As a result of the borrowing base calculation as of December 31, 2011, the Company had $18.4 million available for advances, of which the Company had used $13.2 million of the revolving loan, including $9.3 million of advances, $3.8 million of availability for letters of credit to support the Company's future raw materials purchases and self-insurance policies, and $0.1 million maintained as a required reserve. As a result, at December 31, 2011, the Company had excess availability of $5.2 million. As of December 31, 2011, the Company had $3.6 million outstanding on the term loan, which is classified as a mortgage payable, and amortizes based on a 20-year schedule. The Credit Facility matures on August 4, 2016. The Credit Facility is secured by substantially all of the Company's assets. The interest rate on the revolving and term loans varies between 50 and 250 basis points over the Base Rate (as defined in the Credit Facility) or LIBOR depending on the level of the fixed charge coverage ratio. The type of interest rate is an election the Company periodically makes. As of December 31, 2011, $7.5 million of the outstanding revolving loan was based on LIBOR plus 2.50% (3.0% as of December 31, 2011) and the remaining outstanding revolving loan balance of approximately $1.8 million was at the Prime Rate plus 1.00% (4.25% at December 31, 2011). As of December 31, 2011, $3.5 million of the outstanding term loan was based on LIBOR plus 2.50% (3.0% as of December 31, 2011) and the remaining outstanding term loan balance of approximately $65,000 was at the Prime Rate plus 1.00% (4.25% at December 31, 2011). The Credit Facility requires the Company to comply with (a) a fixed charge coverage ratio of 1.0 to 1.0 through March 31, 2012 and 1.1 to 1.0 thereafter; (b) a funded debt to EBITDA ratio not to exceed 2.0 to 1.0; (c) a limit on annual capital expenditures of $2.0 million each year through December 31, 2013 increasing to $2.5 million annually for 2014 and 2015; and (d) a limit on annual reusable surgical product capital expenditures of $9.0 million each year through December 31, 2013, increasing to $10.0 million annually in 2014 and $11.0 million annually in 2015. As of December 31, 2011, the Company did not comply with the required fixed charge coverage ratio under the Credit Facility. On February 28, 2012, the Company entered into an amendment to the Credit Facility with its lender, under which the Company's lender waived this default. Additionally, the interest rate on the revolving and term loans increased to between 250 and 450 basis points over the Base Rate or LIBOR depending on the level of the fixed charge coverage ratio, which represents a 200 basis point increase. The Company's fixed charge coverage ratio will not be tested on January 31, 2012 or February 29, 2012 and the Company must maintain a minimum excess availability of not less than $2.5 million during the period February 1, 2012 through and including five business days following the Company's lender's receipt of required monthly compliance information from the Company for the period ending March 31, 2012. Should the Company not be in compliance with any of the Credit Facility covenants at a future date, the Company believes that it would be able to obtain a waiver or amendment from its lender or have alternative financing options available to the Company. The Credit Facility includes typical provisions restricting the Company from paying dividends, incurring additional debt, making loans and investments, encumbering its assets, entering into a new business, or entering into certain merger, consolidation, or liquidation transactions. For the years ended December 31, 2011, 2010, and 2009, interest expense was approximately $655,000, $702,000, and $619,000, respectively. Interest expense in 2011 and 2010 included approximately $130,000 and $132,000, respectively, of interest related to a mortgage, see Note E – Mortgage Payable. Interest expense in 2011 and 2010 included approximately $19,000 and $62,000, respectively, of interest related to the bonds, see Note F – Bonds Payable. </div>

3368000

3250000

3153000

<div> NOTE J – STOCK-BASED COMPENSATION The Company maintains five stock option plans: the 1995 Stock Option Plan, the 1996 Non-Employee Director Plan, the 1998 Stock Option Plan, the 2004 Stock Compensation Plan and the 2009 Stock Compensation Plan. The 1995 Stock Option Plan The 1995 Stock Option Plan was designed to provide employees with incentive or non-qualified options to purchase up to 700,000 shares of common stock. The options vest ratably over four to five years from the date of grant. All outstanding options vest upon a change in control of the Company. Options granted under this Plan expire no later than ten years after the date granted or sooner in the event of death, disability, retirement or termination of employment. As of December 31, 2011 and 2010, options to purchase 10,500 shares of Company stock were outstanding under this Plan. The 1995 Stock Option Plan terminated on December 21, 2005, although that termination does not adversely affect any options outstanding under the Plan. The 1996 Non-Employee Director Plan As amended on May 16, 2001, the Non-Employee Plan was designed to provide for the grant of non-qualified stock options to purchase up to 200,000 shares of common stock to members of the Board of Directors who are not employees of the Company. At the completion of the Company's initial public offering, each non-employee director was granted options to purchase 4,000 shares of common stock for each full remaining year of the director's term. As of March 2006, the equity component of the director compensation plan was restructured, so that each non-employee director received after that date an annual grant of options to purchase 7,500 shares of common stock as of the date of each Annual Shareholder Meeting. All options vest ratably over a three-year term and have an exercise price equal to the fair market value of the common stock on the date of grant. As of December 31, 2011 and 2010, options to purchase 60,000 and 70,000 shares, respectively, were outstanding under this plan. The 1996 Non-Employee Director Plan terminated on July 14, 2006, although that termination does not adversely affect any options outstanding under the Plan. The 1998 Stock Option Plan As amended on May 16, 2001, the 1998 Stock Option Plan is designed to provide employees with incentive or non-qualified options to purchase up to 600,000 shares of common stock. The options vest ratably over four to five years from the date of the grant. All outstanding options vest upon a change in control of the Company. Options granted under this Plan expire no later than ten years after the date granted or sooner in the event of death, disability, retirement, or termination of employment. As of December 31, 2011 and 2010, options to purchase 242,000 and 268,000 shares, respectively, were outstanding under this Plan. The 1998 Stock Option Plan terminated on February 17, 2008, although that termination does not adversely affect any options outstanding under the Plan. The 2004 Stock Compensation Plan The 2004 Stock Compensation Plan is designed to further the interests of the Company and its shareholders by providing incentives in the form of incentive or non-qualified stock options or restricted stock grants to key employees and non-employee directors who contribute materially to the success and profitability of the Company. Under this Plan, restricted stock grants are not considered outstanding options upon grant but are considered issued and outstanding stock. Any forfeited restricted stock awards are considered available for grant. Except for annual grants to non-employee directors described below, the equity awards typically vest ratably over five years from the date of the grant. Each non-employee director of the Company receives an annual award of options to purchase 7,500 shares of common stock as of the date of the Annual Shareholder Meeting. Under each grant agreement, the options vest ratably over a three-year period and have an exercise price equal to the fair market value of the common stock on the date of grant. All outstanding grants vest upon a change in control of the Company. Options granted under this Plan expire no later than ten years after the date granted or sooner in the event of death, disability, retirement, or termination of employment. At the Company's Annual Meeting of Shareholders on May 24, 2007, the shareholders approved an amendment to the 2004 Stock Compensation Plan to authorize an additional 500,000 shares under the Plan. As of December 31, 2011 and 2010, options to purchase 917,950 and 908,700 shares respectively, were outstanding, and 4,100 and 30,800 options, respectively, were available to be granted as options or restricted stock under this Plan. The 2009 Stock Compensation Plan The 2009 Stock Compensation Plan is designed to further the interests of the Company and its shareholders by providing incentives in the form of incentive or non-qualified stock options or restricted stock grants to key employees and non-employee directors who contribute materially to the success and profitability of the Company. Under this Plan, restricted stock grants are not considered outstanding options upon grant but are considered issued and outstanding stock. Any forfeited restricted stock awards are considered to be available for grant. Except for annual grants to non-employee directors described above, the equity awards typically vest ratably over five years from the date of the grant. All outstanding grants vest upon a change in control of the Company. Options granted under this Plan expire no later than ten years after the date granted or sooner in the event of death, disability, retirement, or termination of employment. At the Company's Annual Meeting of Shareholders on May 21, 2009, the shareholders approved the 2009 Stock Compensation Plan and authorized 600,000 shares available for grant under the Plan. As of December 31, 2011 and 2010 options to purchase 81,000 and 0 shares, respectively, were outstanding and 519,000 and 600,000 shares, respectively, were available to be granted as options or restricted stock under this Plan. Summary Stock Option Information The fair value of each option grant through June 30, 2011, is estimated on the date of grant using a Binomial options-pricing model. The Company's stock-based compensation expense model uses graded vesting, with shares being earned per day under the accrual method. In addition, the Company estimates forfeitures on the date of grant. The following weighted-average assumptions were used for grants in the years ended December 31, 2011, 2010 and 2009, respectively; no dividend yield for all years; expected volatility of 99%, 103% and 108%; risk-free interest rates of approximately 3.2%, 2.9%, and 3.5%; and expected lives of 8.0, 7.6, and 7.2 years. The weighted average fair value of options granted during the years ended December 31, 2011, 2010 and 2009 were $4.48, $2.69, and $1.03, respectively.   A summary of the status of the Company's stock option plans and other stock options granted as of December 31, 2011, 2010 and 2009 and changes during the years ended on those dates is presented below:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="74%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Options</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Exercise Price</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding as of January 1, 2009</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,106,400</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6.18</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">328,350</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.21</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Forfeited</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(229,100</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8.17</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding as of December 31, 2009</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,205,650</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.45</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">359,850</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.08</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2,700</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.93</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Forfeited</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(155,600</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.44</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding as of December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,407,200</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.11</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">96,650</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5.21</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(450</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.29</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Forfeited</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(41,950</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15.08</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding as of December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,461,450</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.87</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr></table> The following table summarizes information concerning outstanding and exercisable stock options as of December 31, 2011:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="60%"> </td> <td valign="bottom" width="9%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="9%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="9%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Range of Exercise Prices</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Number Outstanding</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Remaining Contractual Life (years)</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Exercise Price</td> <td valign="bottom"> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> All Outstanding Options</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> $  0.93 – $ 2.09</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">291,950</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7.3</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.22</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top">     2.10 –    3.58</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">289,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7.9</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.71</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top">     3.59 –    4.45</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">212,850</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7.2</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.04</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top">     4.46 –    4.63</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">323,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.6</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.53</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top">     4.64 –  16.23</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">344,650</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4.9</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6.36</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,461,450</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.87</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> Exercisable Options</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> $  0.93 – $ 2.09</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">138,173</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7.3</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.25</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top">     2.10 –    3.58</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">83,900</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7.5</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.81</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top">     3.59 –    4.45</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">124,170</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.1</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.12</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top">     4.46 –    4.63</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">291,400</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.6</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.52</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top">     4.64 –  16.23</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">238,600</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3.2</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6.86</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">876,243</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.42</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr></table> As of December 31, 2010 and December 31, 2009, there were 651,936 and 521,200 exercisable options outstanding at weighted average exercise prices of $5.61 and $6.46, respectively.   The following table summarizes option grant activity from January 1, 2011 through December 31, 2011:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="62%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Shares Available for Grant</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Options Outstanding</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Exercise Price </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Remaining Contractual Life</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at January 1, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">630,800</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,407,200</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.11</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7.09</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Options expired</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">350</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(35,950</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">17.12</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options and restricted stock granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(113,650</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">96,650</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5.21</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Options and restricted stock forfeited</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,600</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(6,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.88</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(450</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.29</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Balance at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">523,100</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,461,450</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.87</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.46</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options exercisable at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">876,243</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.42</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.47</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="2%" align="left">*</td> <td valign="top" align="left">Options expired and forfeited are included in the shares available for grant, but do not include options that had expired or were forfeited during 2011 under terminated plans. </td></tr></table> The weighted-average grant date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 was $4.48, $2.69 and $1.03, respectively. For the years ended December 31, 2011 and 2010, the total intrinsic value of options exercised was less than $1,700 and $5,000, respectively. There were no options exercised during the year ended December 31, 2009. As of December 31, 2011, there was $614,000 of unrecognized compensation cost related to non-vested options that is expected to be recognized over a weighted average period of 2.1 years. The total fair value of options and restricted stock vested during the years ended December 31, 2011 and 2010 was $633,000 and $636,000, respectively. The total fair value of options vested during the year ended December 31, 2011 that were issued prior to adoption of ASC 718 was $0. The aggregate intrinsic value of options fully vested at December 31, 2011 was $550,000. The aggregate intrinsic value of options outstanding at December 31, 2011 and expected to vest was $1.3 million. The Company consistently used a binomial model for estimating the fair value of options granted in the years ended December 31, 2010 and 2009, and during the six months ended June 30, 2011. As noted above, as of July 1, 2011, the Company converted to a new equity compensation administration and reporting platform, and converted to the Black-Scholes valuation model from a binomial (Lattice) model. The Company used historical data to estimate the option exercise and employee departure behavior used in the valuation models. Forfeitures are estimated on the date of grant and shares vest on a graded schedule, with shares being earned per day under the accrual method. The expected term of options granted is derived from the output of the option pricing model used and represents the period of time that options granted are expected to be outstanding. The risk-free rates are based on the U.S. Treasury stripped coupon interest in effect at the date of grant based on the expected term of the option granted. Expected volatility is based on historical volatility of the Company's stock. Following are the weighted-average and range assumptions, where applicable, used for each respective period:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="55%"> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" rowspan="2"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Twelve Months Ended</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 2010</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 2009</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2" align="center">(Binomial/Black- Scholes)</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2" align="center">(Binomial)</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2" align="center">(Binomial)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected dividend yield</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.0%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.0%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.0%</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.34 to 3.55%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.47 to 4.08%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">1.10 to 3.96%</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Weighted-average expected volatility</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">99.09%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">103.34%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">108.32%</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Expected term</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">2.5 to 9.0 years</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">2.5 to 8.9 years</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">2.5 to 8.8 years</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Forfeiture rate</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.51 to 81.79%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.52 to 28.01%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.59 to 28.01%</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Respective service period</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">3 to 5 years</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">3 to 5 years</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">3 to 5 years</td> <td valign="bottom" nowrap="nowrap">  </td></tr></table>   Restricted Stock Awards In fiscal year 2006, the Company granted unvested common stock awards ("restricted stock") to certain key employees pursuant to the 2004 Stock Compensation Plan. The shares vest ratably over five years. The restricted stock awards granted in 2006 were accounted for using the measurement and recognition principles of ASC 718. Compensation for restricted stock awards is measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company's common stock. Compensation cost for all awards will be recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period. In February 2008, the Company granted 25,000 shares of restricted stock and options to purchase 150,000 shares of common stock to the Company's Chief Executive Officer. The option award vested evenly over a three-year period. The 25,000 shares of restricted stock vested entirely on the third anniversary date of the date of grant or upon involuntary termination. These grants were inducement grants made outside of the Company's equity compensation plans. In February 2011, the Company granted 17,000 shares of restricted stock with a fair value of approximately $101,000 to a key employee pursuant to the 2004 Stock Compensation Plan. The shares vest ratably over five years. The Company recorded $23,000, $62,000 and $83,000 in compensation expense related to the restricted stock that vested during the years ended December 31, 2011, 2010, and 2009, respectively. As of December 31, 2011, there was approximately $83,000 of total unrecognized compensation cost related to restricted stock awards granted under the Plan, which is expected to be recognized over a period of 4.08 years. The Company received proceeds of less than $1,000 and $2,500 from stock option exercises under all stock-based payment arrangements for the years ended December 31, 2011 and 2010, respectively. The Company did not receive any proceeds from stock option exercises under all share-based payment arrangements for the year ended December 31, 2009 because no exercises were made during that year. There were no capitalized stock-based compensation costs at December 31, 2011. </div>

-0.58

-0.24

-0.58

-0.24

<div> NOTE K – LOSS PER SHARE The following table sets forth the computation of basic and diluted loss per share:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="76%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Years ended December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="10" align="center">(in 000's except per share data)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Basic</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" colspan="9"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Numerator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Loss available for common shareholders</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1,577</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1,560</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(3,776</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Denominator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Weighted average shares outstanding</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,467</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,450</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,464</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Loss per common share – basic</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.24</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.24</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.58</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Diluted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Numerator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net loss</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1,577</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1,560</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(3,776</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Denominator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Weighted average shares outstanding</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,467</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,450</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,464</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Effect of dilutive securities:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Employee stock options</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Weighted average shares outstanding – Diluted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,467</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,450</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,464</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Loss per common share – diluted</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.24</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.24</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.58</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   Options to purchase 607,543, 1,043,779 and 1,161,710 shares of common stock for the years ended December 31, 2011, 2010 and 2009, respectively, were not included in the computation of diluted earnings per common share, because the assumed proceeds per share were greater than the average market price, and therefore, were anti-dilutive. The dilutive effect of 200,742, 322,229 and 15,633 options with assumed proceeds per share less than the average market price, were not included for the years ended December 31, 2011, 2010 and 2009, respectively, because the effect would be anti-dilutive due to the Company's net loss for those periods. </div>

1642000

1558000

-39000

20098000

22768000

23528000

-3694000

-1460000

-1543000

<div> NOTE H – INCOME TAX The expense for income taxes from continuing operations for the three years ended December 31 were as follows (in 000's):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="78%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Current</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">34</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">100</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">82</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Deferred</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">34</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">100</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">82</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> The reconciliation of the federal statutory income tax rate of 34.0% to the effective income tax rate for the three years ended December 31 was as follows:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="78%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Federal statutory income tax rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">34.0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">34.0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">34.0</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> State income taxes, net of federal</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5.6</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(10.0</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4.8</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Non-deductible items</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3.6</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(14.0</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2.7</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Valuation allowance</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(26.7</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(14.2</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(38.6</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Alternative Minimum Tax</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1.1</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2.5</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.8</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.1</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.3</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2.2</td> <td valign="bottom" nowrap="nowrap">)% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(6.8</td> <td valign="bottom" nowrap="nowrap">)% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2.2</td> <td valign="bottom" nowrap="nowrap">)% </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   Significant components of the Company's deferred tax assets and liabilities were as follows (in 000's):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="79%"> </td> <td valign="bottom" width="9%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred tax assets:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Inventory</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">522</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">477</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Accounts receivable</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">49</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">46</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Accrued expenses</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">678</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">733</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> State tax credits</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">866</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">866</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> AMT tax credit carryforward</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">57</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">76</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Federal and state net operating losses</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">680</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">438</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Goodwill</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">34</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Stock options</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">699</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">733</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">27</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,612</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,439</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Valuation allowance</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2,778</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,238</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">834</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">201</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Deferred tax liabilities:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Property, plant & equipment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(760</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(85</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Other</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(74</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(116</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(834</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(201</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Net deferred income tax asset (liability)</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> As of December 31, 2011, the Company has federal net operating loss carry-forwards of $1.9 million that will expire between 2027 and 2031, as well as state net operating loss carry-forwards of $6.5 million that expire between 2011 and 2031. At December 31, 2011, the Company also has a net state tax credit carry-forward of approximately $1.4 million. Approximately $45,000 of the state tax credit carry-forward has a 15-year carry-forward limitation, which begins to expire in 2012. The remaining state tax credit carry-forward amounts have no expiration period. ASC Topic 740 requires a valuation allowance to reduce reported deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, as of December 31, 2011, an allowance of $2.8 million has been established to reduce the deferred tax assets to the amount that will more likely than not be realized. During 2011, the valuation allowance decreased $460,000 primarily as a result of changes in cumulative temporary differences and the effect of the loss incurred during the year. During 2010, the valuation allowance increased $497,000. The effects in any of the quarters presented were not material. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Increases or decreases to the unrecognized tax benefits could result from the Company's belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions. The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions and has open tax years and ongoing tax examinations in major jurisdictions for the years ending December 31, 2007 through 2010. </div>

-111000

61000

153000

82000

100000

34000

-1022000

1330000

387000

278000

682000

1488000

-117000

-833000

66000

-2776000

244000

958000

-323000

145000

-310000

619000

702000

655000

644000

515000

546000

3398000

4357000

48000

-251000

-1000

<div> NOTE L – LEASE AGREEMENT Effective March 1, 2007, the Company entered into an agreement to lease to a third party a portion of its corporate headquarters under the terms of a non-cancelable operating lease. The lease calls for an initial term of five (5) years with a tenant option to renew for one extension period of five years. The lease agreement provides for escalating rental payments over its term. Under the agreement, the tenant pays an allocated share of the increase over the base year of certain costs, including utilities, maintenance costs and property taxes. The lease will expire in March 2012. During 2012, the Company expects to receive future minimum lease payments of approximately $97,000. Rental income, which is included in other income in the statements of operations, was approximately $361,000 for each of the years ended December 31, 2011, 2010 and 2009. </div>

22764000

26239000

61708000

64241000

520000

<div> NOTE E – MORTGAGE PAYABLE As noted above under Note D – Notes Payable, on August 4, 2011, the Company replaced the previous mortgage note on the Company's corporate headquarters with a new $3.7 term loan. The term loan has a term of five (5) years and an amortization schedule based on 20 years, with a balloon payment due on August 4, 2016. As amended pursuant to the restated loan and security credit facility described in Note D above, interest on the term loan varies between 50 and 250 basis points over the Base Rate (as defined in the Credit Facility) or LIBOR depending on the level of the fixed charge coverage ratio. The type of interest rate is an election made periodically by the Company. At December 31, 2011, $3.5 million of the mortgage bears an interest rate of LIBOR plus 2.50% (3.0% at December 31, 2011) and the remaining outstanding balance of approximately $65,000 was at the Prime Rate plus 1.00% (4.25% at December 31, 2011). As also described in Note D, at December 31, 2011, the Company did not comply with the required fixed charge coverage ratio under the Credit Facility and as a result, beginning on February 28, 2012, interest on the term loan varies between 250 and 300 basis points over the Base Rate or 400 to 450 basis points over LIBOR depending on the level of the fixed charge coverage ratio. Mortgage payments as of December 31, 2011 for the next five years are as follows (in 000's):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="68%" align="center"> <tr><td width="86%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2012</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">215</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2013</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">215</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2014</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">215</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2015</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">215</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2016</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,705</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,565</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td></tr></table> </div>

-2525000

-793000

3025000

-7486000

-7220000

-10505000

10329000

8538000

8015000

-3776000

-1560000

-1577000

5561000

9320000

-3442000

-1119000

-1250000

2493000

2640000

5175000

5592000

5688000

367000

361000

362000

5904000

6230000

8665000

1582000

990000

1840000

<div> NOTE M – SRI SURGICAL 401(k) PLAN The Company sponsors the SRI SURGICAL/Surgical Express, Inc. 401(k) Plan (the "Plan"), a defined contribution plan established under Section 401(k) of the U.S. Internal Revenue Code. Employees are eligible to contribute voluntarily to the Plan after six months of continued service, satisfying 1,000 hours of service and attaining age 21. In addition to the employees' contributions, at its discretion, the Company may contribute 50% of the first 4% of the employee's contribution. The Plan allows for employee elective contributions up to an amount equivalent to 15% of salary. Employees are always vested in their contributed balance and vest ratably in the Company's contribution over three years. For the years ended December 31, 2011, 2010, and 2009, the Company's expense related to the Plan was approximately $327,000, $319,000, and $303,000, respectively. </div>

0.001

5000000

2092000

1781000

98215000

105224000

124421000

6045000

3000

1000

<div> NOTE C – PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="73%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" rowspan="2" align="center">Useful Lives In  Years</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in 000's)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Land</td> <td valign="bottom">  </td> <td valign="bottom" align="center">—  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,582</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,582</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Land improvements</td> <td valign="bottom">  </td> <td valign="bottom" align="center">15</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">646</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">646</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Construction in process</td> <td valign="bottom">  </td> <td valign="bottom" align="center">—  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,503</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,267</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Buildings and improvements</td> <td valign="bottom">  </td> <td valign="bottom" align="center">20-40</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,179</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,100</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Leasehold improvements</td> <td valign="bottom">  </td> <td valign="bottom" align="center">2-18</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">8,156</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7,943</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Machinery and equipment</td> <td valign="bottom">  </td> <td valign="bottom" align="center">3-12</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">22,234</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">21,482</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Office furniture, equipment and computers</td> <td valign="bottom">  </td> <td valign="bottom" align="center">3-10</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,380</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,904</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">54,680</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">52,924</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Less: Accumulated depreciation and amortization</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(30,627</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(27,519</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">24,053</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">25,405</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> In accordance with ASC Topic 350, Intangibles-Goodwill and Other ("ASC 350"), certain external direct costs of materials and services, and other qualifying costs incurred in connection with developing or obtaining internal use software are capitalized. The Company capitalized costs of internally developed software in the amounts of approximately $10,000 and $13,000 during the years ended December 31, 2011 and 2010, respectively. Such capitalized costs primarily relate to the cost of software and certain contracted programming costs, as well as other such qualifying costs. Construction in process primarily relates to internally developed software-related costs for electronic data interchange, quoting, and data management tools to be used in the Company's daily operations. For the years ended December 31, 2011, 2010 and 2009, depreciation and amortization expense was approximately $3.2 million, $3.2 million, and $3.4 million, respectively. </div>

25405000

24053000

18000

25000

36000

<div> NOTE O – SELECTED QUARTERLY FINANCIAL DATA (Unaudited) The following selected unaudited quarterly information is being disclosed in accordance with Regulation S-K (Item 302):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="56%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">Quarters Ended</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Mar. 31, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Jun. 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Sep. 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Dec. 31, 2011</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="14" align="center">(In thousands, except per share data)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Revenues</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">27,330</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">26,781</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">26,430</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">27,038</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Gross profit</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,909</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,517</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,877</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,225</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net income (loss)</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(490</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(810</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(534</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">257</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Basic income (loss) per share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.08</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.13</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.08</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.04</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Diluted income (loss) per share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.08</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.13</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.08</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.04</td> <td valign="bottom" nowrap="nowrap">  </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="56%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">Quarters Ended</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Mar. 31, 2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Jun. 30, 2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Sep. 30, 2010</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Dec. 31, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="14" align="center">(In thousands, except per share data)</td> <td valign="bottom"> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Revenues</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">24,611</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">25,047</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">24,824</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">26,382</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Gross profit</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,932</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,840</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,718</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,278</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net income (loss)</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1,533</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(313</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">21</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">265</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Basic income (loss) per share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.24</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.05</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.04</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Diluted income (loss) per share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.24</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.05</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.00</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.04</td> <td valign="bottom" nowrap="nowrap">  </td></tr></table> In 2011, the sum of quarterly basic and diluted per share amounts do not equal full year basic and diluted per share amounts due to rounding. </div>

<div> NOTE N – RELATED PARTY TRANSACTIONS The Company purchases a portion of its reusable surgical products from Standard Textile. Standard Textile is a shareholder of the Company. During the years ended December 31, 2011, 2010, and 2009, the Company purchased products in the amounts of $3.3 million, $4.1 million, and $4.8 million, respectively, from Standard Textile. During the year ended December 31, 2009, the Company paid approximately $93,000 in consulting fees to a director and shareholder of the Company for assistance with managing the facilities operations while the Company searched for a new operations leader. </div>

12000

215000

233000

215000

100513000

105787000

120662000

6565000

5274000

3697000

98453000

100864000

107579000

<div> SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS SRI/SURGICAL EXPRESS, INC.   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="55%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Description</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Balance at Beginning of Period</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Charged to Costs and Expenses</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Write-offs / Reductions</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Balance at end of Period</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Allowance for doubtful accounts:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Year ended December 31, 2009</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">106,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">74,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(56,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">124,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Year ended December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">124,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">25,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(27,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">122,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Year ended December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">122,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">36,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(30,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">128,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td height="8" colspan="17"> </td></tr> <tr bgcolor="#cceeff"><td valign="top" colspan="16"> Reserve for shrinkage, obsolescence, and scrap: reusable surgical products</td> <td valign="top">  </td></tr> <tr><td valign="top"> Year ended December 31, 2009</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,387,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,155,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(3,329,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,213,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Year ended December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,213,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,330,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,403,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,140,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Year ended December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,140,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,348,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,230,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,258,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td height="8" colspan="17"> </td></tr> <tr bgcolor="#cceeff"><td valign="top" colspan="16"> Reserve for shrinkage and obsolescence: disposable products</td> <td valign="top">  </td></tr> <tr><td valign="top"> Year ended December 31, 2009</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">314,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">145,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(96,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">362,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Year ended December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">362,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(250,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">112,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Year ended December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">112,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">109,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(110,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">111,000</td></tr></table> </div>

3780000

3565000

16607000

16362000

16159000

659000

636000

633000

6495978

6485978

6485678

6503128

6933000

7525000

8619000

<div> NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Statement Presentation The Company presents an unclassified balance sheet as a result of the extended amortization period (predominantly three to six years) of its reusable surgical products. The Company provides reusable surgical products to its customers on a per use basis similar to a rental arrangement. The Company operates on a 52-53 week fiscal year ending the Sunday nearest December 31st. The financial statements reflect the Company's year-end as of December 31st for presentation purposes only. The actual end of each period was January 1, 2012, January 2, 2011, and January 3, 2010. There were 52 weeks included in each of the years ended December 31, 2011, 2010 and 2009. Use of Estimates Management is required to make certain estimates and assumptions during the preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates and assumptions. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash and cash equivalents. The Company maintains its cash and cash equivalents in financial institutions the Company considers of high credit quality. From time to time, the cash balances in these accounts exceed the Federal Deposit Insurance Corporation insured limits. To date, the Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk on its cash and cash equivalents. Accounts Receivable, Net The Company has accounts receivable from hospitals and surgery centers. The Company does not believe that there is sufficient credit risk associated with those receivables to require a form of collateral from its customers. The allowance for doubtful accounts as of December 31, 2011 and 2010 was approximately $128,000 and $122,000, respectively. The allowance for doubtful accounts relates to accounts receivable not expected to be collected and is based on management's assessment of specific customer balances, the overall aging of the balances, and the financial stability of the customers.   Concentration of Credit Risk For the year ended December 31, 2011, revenues relating to hospitals belonging to three group purchasing organizations (Novation, LLC, HealthTrust Purchasing Group, L.P., and MedAssets, Inc.) collectively accounted for approximately 58% of the Company's revenues. For the years ended December 31, 2010 and 2009, revenues relating to hospitals belonging to these group purchasing organizations collectively accounted for approximately 55% and 62%, respectively, of the Company's revenues. No single hospital or surgery center customer accounted for more than 10% of the Company's revenues for the year ended December 31, 2011, 2010 or 2009. Unbilled Receivable Included in prepaid expenses and other assets are unbilled receivables related to certain instruments purchased on behalf of a vendor in the amounts of $11,000 and $189,000 at December 31, 2011 and 2010, respectively. Inventories, Net Inventories consist of raw materials, principally consumables, supplies, and disposable surgical products; and finished goods consisting of assembled packs of various combinations of raw materials and disposable accessory packs purchased from third parties. Inventories are valued at the lower of cost or market, with cost being determined on the first-in, first-out method. As of December 31, 2011 and 2010, inventory consists of the following:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="86%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in 000's)</td> <td valign="bottom"> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Raw materials</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,710</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,053</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Finished goods</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,758</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,457</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,468</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,510</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Less: Inventory reserve</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(111</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(112</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,357</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,398</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> At December 31, 2011, approximately $504,000 of raw material purchased from Gore is included in the raw materials inventory balance. Reusable Surgical Products, Net The Company's reusable surgical products, consisting principally of linens (gowns, towels, and drapes), basins (stainless steel medicine cups, carafes, trays, basins) and owned surgical instruments, are stated at cost. Amortization of linens is computed on a basis similar to the units of production method. Estimated useful lives for each product are based on the estimated total number of available uses for each product. The expected total available usage for our linen products using the three principal fabrics (accounting for approximately 75% of the reusable surgical products) is 75, 100, and 125 uses, based on several factors, including our actual historical experience with these products. The Company believes RFID technology enables it to evaluate the useful lives of linen products more efficiently. Basins are amortized on a straight-line basis over their estimated useful life, up to 20 years. Owned surgical instruments are amortized straight-line over a period of four years. Accumulated amortization as of December 31, 2011 and 2010 was approximately $16.9 million and $15.4 million, respectively. As of December 31, 2011 and 2010, the reusable surgical products balances include reserves for shrinkage, obsolescence and scrap related to reusable surgical products of approximately $1,258,000 and $1,140,000, respectively.   Property, Plant and Equipment, Net Property, plant and equipment are stated at cost. Depreciation and amortization are computed on the straight-line method with a half-year convention over the estimated useful lives of the assets, or the term of the related leases for leasehold improvements, whichever is shorter. Health Insurance The Company offers employee benefit programs, including health insurance, to eligible employees. The Company retains a liability of up to $110,000 annually for each plan member. The policy has an estimated annual aggregate liability limit of $3.1 million in 2011 and provides insurance for aggregate claims of $1.0 million in excess of this limit. Health insurance costs are accrued using estimates to approximate the liability for reported claims and claims incurred but not reported. At December 31, 2011 and 2010, the Company accrued a liability of approximately $357,000 in each year for claims incurred and claims incurred but not reported, which is included in employee related accrued expenses in the accompanying balance sheets. Workers' Compensation Insurance The Company has a large dollar deductible, self-funded plan for its workers' compensation insurance program. The Company retains a liability of $250,000 for each claim occurrence. The policy has an annual aggregate liability limit of $1.6 million. The Company has obtained letters of credit in the amount of $1,137,000 with its primary lender to secure the payment of future claims. The Company accrues workers' compensation insurance costs using estimates to approximate the liability for reported claims and claims incurred but not reported, as determined by an independent actuary. As of December 31, 2011 and 2010, the Company accrued a liability of approximately $1.1 million and $952,000, respectively, for claims incurred and claims incurred but not reported, which is included in employee related accrued expenses in the accompanying balance sheets. Revenue Recognition Revenues are recognized as products and services are delivered, generally daily. Packing slips signed and dated by the customer evidence delivery of product. The Company's contractual relationships with its customers are primarily evidenced by purchase orders or service agreements with terms varying from one to five years, which are generally cancelable by either party. The Company owns substantially all of the reusable surgical products provided to customers except the surgical instruments. A third party provides most of the surgical instruments that are included in the Company's comprehensive surgical procedure-based delivery and retrieval service. The Company pays a fee to the third party for the use of the surgical instruments. In accordance with ASC Topic 605, Revenue Recognition ("ASC 605"), the Company acts as a principal in this arrangement and has reported the revenue gross for the comprehensive surgical procedure-based delivery and retrieval service. The third party vendor fee charged to the Company is included in cost of revenues in the statements of operations. Advertising Costs associated with advertising are charged to expense as incurred. During the fiscal years ended December 31, 2011, 2010 and 2009, advertising costs of approximately $20,000, $30,000, and, $28,000 respectively, were charged to selling and administrative expenses in the Company's statements of operations. Income Taxes Income taxes have been provided using the asset and liability method in accordance with ASC Topic 740, Income Taxes ("ASC 740"). In accordance with ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in operations in the period that includes the enactment date of the rate change. The tax benefits must be reduced by a valuation allowance in certain circumstances. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are provided for as necessary. In July 2006, the Financial Accounting Standards Board (the "FASB") issued an interpretation that is contained in ASC 740, which clarifies the accounting for and disclosure of uncertainty in tax positions. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition associated with tax positions. Interest and penalties, if applicable, are included in income tax expense. The Company determined that this standard did not have a material impact on its financial statements for the years ended December 31, 2011, 2010 and 2009. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts payable, accrued expenses and accounts receivable approximate fair value due to their short-term nature. The fair values of notes payable, bonds payable and mortgage payable approximate the carrying amounts as the interest rates are based on market interest rates. Loss Per Share Basic loss per share is calculated by dividing net loss available for common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss available for common shareholders by the weighted average number of common and potential common shares outstanding during the period. The number of potential common shares takes into account the dilutive effect of outstanding options, calculated using the treasury stock method. Employee Termination Costs The Company incurred $108,000, $98,000 and $326,000 in 2011, 2010, and 2009, respectively, for expenses related to the termination of executive officers and various employees. The Company had approximately $16,000 and $0 of employee termination expense accrued as of December 31, 2011 and 2010, respectively. Stock-based Compensation The Company accounts for its stock-based compensation plans in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation, ("ASC 718"). Under ASC 718, all stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. On July 1, 2011, as part of the Company's conversion to a new equity compensation administration and reporting platform, the Company converted to the Black-Scholes valuation model from a binomial (Lattice) model. The cost for all stock-based awards granted between December 31, 2005 and June 30, 2011, represents the grant-date fair value that was estimated in accordance with the provisions of ASC 718, utilizing a binomial (Lattice) model. The cost of all stock-based awards granted subsequent to June 30, 2011, represents the grant-date fair value that is estimated in accordance with the provisions of ASC 718, utilizing the Black-Scholes valuation model. Because the Company does not accrue dividends, the fair value, when using the Black-Scholes valuation model is essentially the same as the binomial (Lattice) model, when valuing a stock option grant. For the years ended December 31, 2011, 2010 and 2009, respectively, stock-based compensation expense was $633,000, $636,000 and $659,000, or $633,000, $636,000 and $659,000 net of income tax, which contributed to a $0.10 reduction in basic and diluted earnings per share in each year presented. Fair Value Accounting The Company defines fair value based on ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 creates a fair value hierarchy, which prioritizes the inputs to be used in determining fair value and requires disclosure of relevant fair value information, which should describe the inputs used to measure fair value, and the effect of those measurements on earnings for the periods presented. </div>

42982000

32366000

6000

10610000

39865000

33025000

6000

6834000

38944000

33664000

6000

5274000

38002000

34298000

7000

3697000

<div> NOTE I – SHAREHOLDERS' EQUITY Common Stock Subject to preferences which might be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive dividends when, as, and if declared from time to time by the Board of Directors out of funds legally available. The Company's revolving credit facility restricts the Company from paying dividends. In the event of liquidation, dissolution, or winding-up of the Company, holders of the common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of any preferred stock then outstanding. The common stock has no preemptive or conversion rights and is not subject to call or assessment by the Company. There are no redemption or sinking fund provisions applicable to the common stock. Preferred Stock The Company is authorized to issue 5,000,000 shares of preferred stock, $.001 par value per share. The Board of Directors has the authority, without any further vote or action by the Company's shareholders, to issue preferred stock in one or more series and to fix the number of shares, designations, relative rights (including voting rights), preferences, and limitations of those series to the full extent now or hereafter permitted by Florida law. The Company did not have any outstanding shares of preferred stock at December 31, 2011 or 2010. The Company is authorized to issue 50,000 shares of Series A Junior Participating Preferred Stock, $.001 par value per share. The Board of Directors has the authority, by resolution, to increase or decrease the number of shares, except that a decrease will not reduce the number of shares of the Series A Junior Participating Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance on the exercise of options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series A Junior Participating Preferred Stock. The Company did not have any outstanding shares of preferred stock at December 31, 2011 or 2010. The Series A Junior Participating Preferred Stock was authorized in connection with the Rights Plan described below. Rights Plan On November 5, 2010, the Company's Board of Directors adopted a Shareholder Rights Plan (the "Rights Plan") and declared a dividend of one right on each outstanding share of its common stock. The Rights Plan has a term of two years. Each right entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share (a "Unit") of Series A Junior Participating Preferred Stock (the "Series A Preferred Stock") at a purchase price of $15.00 per Unit, subject to adjustment. Under the Rights Plan, the rights generally become exercisable only if a person or group (i) acquires beneficial ownership of 15% or more of the Company's common stock or (ii) announces or commences a tender or exchange offer that would result in that person or group acquiring 15% or more of its common stock. Thereafter, all rights beneficially owned by the person or group that acquired (or that would acquire as a result of a tender or exchange offer) 15% or more of its common stock will become null and void. If they become exercisable, the rights entitle the holder of each right to purchase for the purchase price that number of shares of the Company's common stock that has a market value of twice the exercise price, subject to certain adjustments as provided under the Rights Plan. The rights are redeemable by the Company for $0.001 per right, subject to adjustment, any time before the rights become exercisable, including to permit an offer to purchase all of its common shares. Until they become exercisable, the rights will not be evidenced by separate certificates and trade automatically with the Company's common stock. The rights expire on November 5, 2012, unless earlier redeemed, exchanged, or amended by the Company. </div>

17000

2700

450

1000

3000

1000

10000

3000

6464000

6450000

6467000

6464000

6450000

6467000