NOTE E: STOCK INCENTIVE PLANS

In August 2012, our shareholders approved the 2012 Equity Incentive Plan (the “2012 Plan”), which provides for the grant of equity incentives, consisting of options, stock appreciation rights, restricted stock and restricted stock units to officers, other key employees, directors and consultants. The 2012 Plan initially set aside, for the grant of such equity incentives, 300,000 shares of our common stock, plus an additional 17,666 shares which was equal to the total of the number of shares that were then available for the grant of new options or other equity incentives under our then existing stockholder-approved stock incentive plans (the “Previous Plans”). At the same time, those 17,666 shares ceased to be available for the grant of equity incentive under those Previous Plans. At December 31, 2013, options to purchase a total of 279,000 shares of our common stock and a total of 318,660 unvested shares of restricted stock were outstanding, and 355,367 shares remained available for future grants of equity incentives, under the 2012 Plan.

The Previously Approved Plans had provided that, if any options outstanding under any of those Plans were to expire or otherwise terminate, rather than being exercised, or any unvested restricted shares were to be cancelled, the shares that had been subject to those options and such cancelled restricted shares would become available for the grant of new options or other equity incentives under those Plans. However, the 2012 Plan provides, instead, that if any of those options expire or terminate for any reason or any of those unvested restricted shares are cancelled, then, the number of shares that will become available for grants or awards of equity incentives under the 2012 Plan will be increased by an equivalent number of shares, instead of becoming available for new equity incentive grants under the Previously Approved Plans. Therefore, if any equity incentives that are outstanding under the Previously Approved Plans expire, terminate or, subject to certain limitations, are reacquired by the Company, then a number of shares equal to the number of shares that had been subject to those equity incentives would become available for future grants under the 2012 Plan and those shares would cease to be available for future grants under the Previously Approved Plans.

Information Regarding Stock Options. The fair value of outstanding options 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,
	2013			2012			2011
Expected volatility		57.00	%		59.00	%		72.00	%
Risk free interest rate		2.73	%		1.64	%		2.15	%
Expected dividend yields		N/A			N/A			N/A
Expected lives		10 yrs.			10 yrs.			10 yrs.

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, 2013 and 2012:


	Year Ended December 31, 2013
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Values
Outstanding at January 1, 2013		433,000		$	3.60
Granted		10,000			3.80
Exercised		(30,500	)		0.94
Forfeited		(133,500	)		4.84

Outstanding at December 31, 2013		279,000			3.31		2.5 years	$	321,200

Exercisable at December 31, 2013		269,000			3.29		2.2 years	$	321,200

Options vested and expected (as of December 31, 2013) to vest in the future		279,000			3.31		2.5 years	$	321,200


	Year Ended December 31, 2012
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Values
Outstanding at January 1, 2012		546,001		$	4.54
Granted		8,000			1.80
Exercised		(3,334	)		0.90
Forfeited		(117,667	)		7.90

Outstanding at December 31, 2012		433,000			3.60		2.4 years	$	157,000

Exercisable at December 31, 2012		425,000			3.64		2.3 years	$	155,000

Options vested and expected (as of December 31, 2012) to vest in the future		433,000			3.60		2.4 years	$	157,000

The aggregate intrinsic value in each of the tables above represents the total pre-tax intrinsic value (the aggregate difference between the closing price of the Company’s common stock on the American Stock Exchange on December 31, 2013 and 2012, 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, 2013 and 2012, respectively). The total pre-tax intrinsic values of the options exercised during 2013 and 2012 were $75,000 and $3,000, respectively.

The weighted-average grant-date fair values of options granted during the years ended December 31, 2013 and 2012 were $2.77 and $1.28, respectively.

A summary of the status of the Company’s unvested stock options as of December 31, 2013 and 2012 and the changes that occurred during each of the years then ended is presented below:


	Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2013		8,000		$	1.28
Granted		10,000			2.77
Vested		(8,000	)		1.28
Forfeited		—			—

Unvested at December 31, 2013		10,000		$	2.77


	Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2012		69,200		$	0.73
Granted		8,000			1.28
Vested		(69,200	)		0.73
Forfeited		—			—

Unvested at December 31, 2012		8,000		$	1.28

As of December 31, 2013 and 2012, unrecognized compensation cost related to unvested options granted under the Company’s equity incentive plans totaled $7,000 and $3,000, respectively. At December 31, 2013 and 2012, those costs were expected to be recognized over a weighted average period of 0.2 years and 0.2 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, 2012:


Range	Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Options Exercisable		Weighted Average Exercise Price
$0.63 – $4.50		190,000	$	1.65		2.7		180,000	$	1.53
$4.75 – $9.80		89,000	$	6.85		2.0		89,000	$	6.85

$0.63 – $9.80		279,000	$	3.31		2.5		269,000	$	3.29

Restricted Shares. Between January 1, 2010 and December 31, 2013, we awarded to some of our officers and other key management employees a total of 439,000 “service -contingent” restricted shares of our common stock. The terms of those grants provided for those restricted shares to vest in equal annual installments over a three or four year service period following the respective dates of those awards, subject to the continued service with the Company of the recipients of such shares. In accordance with ASC 718, compensation expense for such awards is based on the fair market value of the awards on their respective dates of grant and is recognized over those service periods. Between January 1, 2010 and December 31, 2013, a total of 223,003 of these service-contingent restricted shares had vested and a total of 206,997 of those service-contingent restricted shares remained unvested at December 31, 2013. Since all of the holders of those remaining unvested restricted shares were still in the Company’s employ at December 31, 2013, we expect that all of those unvested restricted shares will vest over the remainder of their respective vesting periods. At December 31, 2013, unrecognized stock-based compensation cost attributable to service-contingent restricted shares totaled approximately $292,500 which, as of that date, was expected to be recognized over a weighted average period of approximately 2.2 years. The aggregate intrinsic value of these restricted shares, at December 31, 2013, was $677,000.

In 2013, the Compensation Committee granted, under our 2012 Equity incentive Plan, a total of 167,500 performance-contingent restricted shares to our officers and other key management employees. One third of these performance contingent shares were to vest in each of 2013, 2014 and 2015, subject to the achievement by the Company of different financial performance goals applicable to those years. Stock-based compensation expense with respect to each one-third of those performance-contingent shares is recognized only if, and when, a determination is made that the Company’s achievement of the performance goal for the particular year had become probable. However, if any compensation expense were to be recognized based on such a determination, but the performance goal was not ultimately achieved (due, for example, to the occurrence of subsequent changes in market or economic conditions that adversely affected the Company’s financial performance during the remainder of the year), then, the previously recognized stock-based compensation expense would be reversed. The Company did not achieve the financial performance goal for 2013. As a result, no stock-based compensation expense was recognized in respect of any of the performance-contingent shares in 2013, one third of the performance-contingent restricted shares were cancelled, and the remaining 111,663 of these performance-contingent shares continued to be unvested as of December 31, 2013. We cannot predict, as of yet, whether any of those remaining performance-contingent shares will become vested as that will depend on the Company’s results of operations in 2014 and 2015.

At December 31, 2013, unrecognized stock-based compensation cost attributable to performance-contingent restricted shares totaled approximately $330,500 which, as of that date, was expected to be recognized over a weighted average period of approximately 2.9 years. The aggregate intrinsic value of the performance-contingent restricted shares, at December 31, 2013, was $365,000.

A summary of restricted stock activity during the years ended December 31, 2013 and 2012 is presented below:


	Shares			Weighted Average Grant Date Fair Values
Outstanding at January 1, 2013		312,501		$	3.39
Granted		167,500			2.96
Vested		(105,504	)		3.29
Forfeited		(55,837	)		2.96

Outstanding and unvested at end of year		318,660		$	3.27


	Shares			Weighted Average Grant Date Fair Values
Outstanding at January 1, 2012		232,501		$	4.31
Granted		147,500			2.28
Vested		(58,500	)		4.15
Forfeited		(9,000	)		3.89

Outstanding and unvested at end of year		312,501		$	3.39