NOTE E: STOCK INCENTIVE PLANS

In August 2008, our shareholders approved the 2008 Equity Incentive Plan (the “2008 Plan”), which provides for the grant of equity incentives, consisting of options, stock appreciation rights (SARs), and restricted shares of common stock (“restricted shares”), to officers, other key employees, directors and consultants. The 2008 Plan initially set aside, for the grant of such equity incentives, 300,000 shares of our common stock, plus an additional 41,500 shares which was equal to the total of the shares that were then available for the grant of new options under our then existing stockholder-approved stock incentive plans (the “Previous Plans”). At the same time, those 41,500 shares ceased to be available for the grant of equity incentive under those Previous Plans. At December 31, 2011, options to purchase a total of 546,001 shares of our common stock and a total of 232,501 shares of restricted stock were outstanding, and 52,666 shares remained available for future grants of equity incentives, under the 2008 Plan.

At the time the 2008 Plan was adopted, options to purchase a total of 593,333 shares of our common stock, granted under the Previous Plans, were outstanding. The Previous Plans had provided that, if outstanding options were to expire or otherwise terminate, the shares that had been subject to those options that were left unexercised would become available for the grant of new options under those Plans. However, the 2008 Plan provides that if any of the outstanding options granted under the Previous Plans expire or are terminated for any reason, they will not become available for the grant of equity incentives under those Plans and, instead, the number of shares that are available for grants of equity incentives under the 2008 Plan will be increased by an equivalent number of shares. At December 31, 2011, options to purchase a total of 340,667 shares of our common stock were still outstanding under the Previous Plans.

Information Regarding Stock Options. The fair value of each option was estimated as of the date of grant using a binomial model. This model incorporates certain assumptions including a risk-free market interest rate, the expected dividend yield of the underlying common stock, the expected life of the option and expected volatility in the market value of the underlying common stock.

We used the following assumptions in estimating the fair value of the options issued in the periods indicated below:


	Year Ended December 31,
	2011			2010			2009
Options granted under Equity Incentive Plans:
Expected volatility		72.00	%		71.00	%		57.00	%
Risk free interest rates		2.15	%		2.79	%		1.76	%
Expected dividend yields		N/A			N/A			N/A
Expected lives		10 years			10 years			3 years

Expected volatilities are based on the historical volatility of the Company’s common stock. The risk free interest rate is based upon market yields for United States Treasury debt securities. The expected dividend yields are based upon the Company’s dividend policy in effect in each of the years presented and the fair market value of the Company’s shares at the time of grant. Expected lives are based on several factors including the average holding period of the outstanding options, their remaining terms and the cycle of our long range business plan.

The following tables summarize stock option activity during the years ended December 31, 2011 and 2010:


	Year Ended December 31, 2011
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Values
Outstanding at January 1, 2011		652,001		$	5.01
Granted		8,000			2.74
Exercised		(7,000	)		0.82
Forfeited		(107,000	)		7.54

Outstanding at December 31, 2011		546,001			4.54		2.8 years	$	202,800

Exercisable at December 31, 2011		476,801			5.01		2.7 years	$	131,000

Options vested and expected (as of December 31, 2011) to vest in the future		546,001			4.54		2.8 years	$	202,800


	Year Ended December 31, 2010
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Values
Outstanding at January 1, 2010		707,667		$	4.99
Granted		8,000			4.25
Exercised		(33,666	)		1.94
Forfeited		(30,000	)		7.78

Outstanding at December 31, 2010		652,001			5.01		3.3 years	$	545,000

Exercisable at December 31, 2010		461,901			5.85		3.1 years	$	207,800

The aggregate intrinsic value in each of the tables above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock on December 31, 2011 and 2010, respectively, and the exercise price for in-the-money options that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2011 or 2010, respectively). The total pre-tax intrinsic values of the options exercised during 2011 and 2010 were $ 21,000 and $72,950, respectively.

The weighted-average grant-date fair values of options granted during the years ended December 31, 2011 and 2010 were $1.97 and $3.23, respectively.

A summary of the status of the Company’s nonvested stock options as of December 31, 2011 and 2010 and the changes that occurred during each of the years then ended is presented below:


	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2011		190,100		$	1.11
Granted		8,000			1.97
Vested		(128,900	)		1.37
Forfeited		—			—

Nonvested at December 31, 2011		69,200		$	0.73


	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2010		368,500		$	1.38
Granted		8,000			3.23
Vested		(182,650	)		1.72
Forfeited		(3,750	)		2.60

Nonvested at December 31, 2010		190,100			1.11

As of December 31, 2011 and 2010, there was $8,550 and $88,900, respectively, of total unrecognized compensation cost related to nonvested options granted under the Company’s equity incentive plans. At December 31, 2011 and 2010, those costs were expected to be recognized over a weighted average period of 0.5 years and 1.1 years, respectively.

Set forth below is additional information with respect to the stock options that were outstanding under our equity incentive plans at December 31, 2011:


Range	Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Options Exercisable		Weighted Average Exercise Price
$0.63 – $4.50		239,001	$	1.66		3.6		169,801	$	1.81
$4.75 – $9.80		307,000	$	6.78		2.2		307,000	$	6.78

$0.63 – $9.80		546,001	$	4.54		2.8		476,801	$	5.01

Restricted Shares. We awarded a total of 114,500 and 177,000 restricted shares of common stock (“restricted shares”) during 2011 and 2010, respectively, to certain officers and other key management employees under the 2008 Plan. Restricted shares are shares of common stock that are granted subject to a risk of possible forfeiture back to the Company, if the recipient of the shares ceases to remain in the Company’s continuous service for a specified period or periods of time. If the recipient remains in the Company’s continuous service for the requisite period of time, the restricted shares will become “vested” (that is, cease to be subject to forfeiture). Until restricted shares become vested, those shares may not be sold or otherwise transferred, in whole or in part, by the holders of those shares, and are subject to additional restrictions. We record stock-based compensation expense for restricted share awards based on the fair market value of the shares on their respective award dates and such expense is recorded over the respective vesting periods of the awards. At December 31, 2011, the unrecognized stock-based compensation cost attributable to these restricted shares totaled approximately $700,660 which, as of that date, was expected to be recognized over a weighted average period of approximately 1.7 years. During 2011, 58,999 of the 177,000 restricted shares granted in 2010 became vested. As of December 31, 2011, all of the holders of the remaining 232,501 unvested restricted shares were still in the Company’s employ and all of those restricted shares are expected to vest over the remainder of their respective vesting periods. The aggregate intrinsic value of these restricted shares, at December 31, 2011, was $523,100.

A summary of the status of the Company’s restricted stock activity is presented below:

A summary of restricted stock activity during the years ended December 31, 2011 and 2010 is presented below:


	Shares			Weighted Average Grant Date Fair Values
Outstanding at January 1, 2011		177,000		$	4.15
Granted		114,500			4.47
Vested		(58,999	)		4.15
Forfeited		—			—

Outstanding and unvested at end of year		232,501		$	4.31


	Shares			Weighted Average Grant Date Fair Values
Outstanding at January 1, 2010		—		$	—
Granted		177,000			4.15
Vested		—			—
Forfeited		—			—

Outstanding and unvested at end of year		177,000		$	4.15