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8. STOCK INCENTIVE PLAN

12 Months Ended

Dec. 31, 2012

Other Income and Expenses [Abstract]

NOTE 8. STOCK INCENTIVE PLAN

The Company has a stock incentive plan, originally created in 1992, most recently amended in 2001. No additional grants may be made under the plan. All stock options have an exercise price that is equal to the fair market value of the Company’s stock on the date the options were granted. Administration of the plan, including determination of the number, term, and type of options granted, resides with the Board of Directors or a duly authorized committee of the Board of Directors. Options were generally granted based on employee performance with vesting periods ranging from date of grant to seven years. At the date of the grant, the maximum term before expiration is ten years.

The following table presents information on stock options outstanding for the periods shown:

		2012								2011
		Weighted Average Exercise								Weighted Average Exercise
		Shares				Price				Shares				Price

Outstanding at beginning of period			356,200			$	3.71				208,700			$	4.12
Granted			-				-				155,000				3.17
Exercised			(2,000	)			3.09				-				-
Forfeited			(43,000	)			3.31				(7,500	)			4.17

Outstanding at end of period			311,200			$	3.76				356,200			$	3.71

The following table presents information on stock options outstanding for the periods shown:

		2012				2011

Intrinsic value of options exercised in the period		$	1,023			$	-
Stock options fully vested and expected to vest			311,200				356,200
Weighted average exercise price		$	3.76			$	3.71
Aggregate intrinsic value		$	84,400			$	8,440
Weighted average contractual term of options		3.54 years				5.09 years
Stock options vested and currently exercisable			223,200				208,700
Weighted average exercise price		$	3.99			$	4.12
Aggregate intrinsic value		$	40,870			$	8,440
Weighted average contractual term of options		2.90 years				3.64 years

Weighted-average options outstanding and exercisable at December 31, 2012 are as follows:

				Options Outstanding												Options Exercisable
								Weighted
				Number				Average				Weighted				Number				Weighted
				Outstanding at				Remaining				Average				Exercisable at				Average
Exercise				December 31,				Contractual				Exercise				December 31,				Exercise
Price				2012				Life				Price				2012				Price
$	2.31				12,000				1.40			$	2.31				12,000			$	2.31
	2.99				16,000				2.12				2.99				16,000				2.99
	3.09				35,000				8.56				3.09				7,000				3.09
	3.24				80,000				3.55				3.24				20,000				3.24
	3.76				91,000				2.58				3.76				91,000				3.76
	5.00				77,200				2.99				5.00				77,200				5.00

$	2.31 - $ 5.00				311,200				3.54			$	3.76				223,200			$	3.99

All share-based compensation is measured at the grant date based on the fair value of the award, and is recognized as an expense in earnings over the requisite service period. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation model. This model uses the assumptions listed in the table below. Expected volatilities are based on implied volatilities from the Company’s stock, historical volatility of the Company’s stock, and other factors. Expected dividends are based on the Company’s plan not to pay dividends for the foreseeable future. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. There were no stock options granted during the year ended December 31, 2012. The assumptions applied to stock options granted during the year ended December 31, 2011 are as follows: Risk-free interest rate of 1.37%; Expected lives of 5.2 years, and; Expected volatility of 33%.