10. STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

10. STOCK-BASED COMPENSATION

In March 2011, the Company’s Board of Directors authorized the 2011 Stock Option Plan (the “Plan”), which was approved by the shareholders on August 25, 2011. The 2011 Stock Option Plan replaces the 2000 Stock Option Plan and all outstanding options under the 2001 Plan have expired. The Plan provides for the grant of options to purchase up to 120,000 shares of the Company’s common stock to the officers and directors of the Company. On March 23, 2011 options were granted to all officers and directors to purchase an aggregate of 118,300 common shares at no less than 100% of the fair market value at the date of grant. These options were issued after approval of the Plan by shareholders on August 25, 2011. These options are vested when issued, except for some of the stock options granted to the President and CEO which vest in 2012 and 2013. Options are not transferable and expire upon termination of employment, except to a limited extent in the event of retirement, disability or death of the grantee. Stock options issued to the CEO have an exercise price of 110% of the fair market value at the date of grant. The average exercise price of the options granted in 2011 was $5.03 per share. The Company’s stock price on the date of grant was $4.80 per share.

The Company’s policy is to record stock compensation expense in accordance with ASC Topic 505-50, “Equity-Based Payments to Non-Employees”. Options granted during 2011 were valued at the date of grant using the Black-Scholes option pricing model.  The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have some vesting restrictions and are not transferable. The per share weighted average fair value of stock options granted during the nine months in 2011 was $.63 and was determined using the following assumptions: expected price volatility 16.25%, risk-free interest rate ranging between .11% and .47%, zero expected dividend yield and five years expected life of options.  The Company’s stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. It is management’s opinion that the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

The Company’s non-employee stock compensation expense based on the fair value at the date of grant for stock options was approximately $49,000for the three and nine months ended September 30, 2011 and is included in the results of operations in the condensed consolidated financial statements. There was no such expense in the prior comparable period.

As of September 30, 2011, there was approximately $26,000 of total unrecognized non-employee stock compensation expense related to unvested stock options under the Plan. This expense is expected to be recognized over the vesting periods ending August 25, 2012 and 2013.

A summary of the status of the Company’s stock option plan as of September 30, 2011 and December 31, 2010, and changes during the periods ending on those dates are presented below:

	As of September 30, 2011					As of December 31, 2010
	Shares			Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at the beginning of the period		102,100		$	8.83		102,100	$	8.83
Granted		118,300			—		—		—
Exercised		—			—		—		—
Expired		(102,100	)		—		—		—
Forfeited		—			—		—		—
Outstanding at the end of the period		118,300		$	5.03		102,100	$	8.83
Options exercisable at period-end		118,300		$	5.03		102,100	$	8.83
Weighted average fair value of options granted during the period		118,300		$	.63		—		—