Stockholders’ Equity

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Stockholders’ Equity

Dividend Declared

The Company’s Board of Directors approved a quarterly dividend on November 10, 2011 of $.03 per share payable in cash on December 15, 2011 to stockholders of record as of November 30, 2011.

Other Equity Compensation

The results of operations for the nine months ended September 30, 2011 and 2010 include other share-based stock compensation expense totaling $-0- and $143,129, respectively. The results of operations for the three months ended September 30, 2011 and 2010 include other share-based stock compensation expense totaling $-0- and $10,000, respectively. For the nine months ended September 30, 2010, other equity compensation consists of: (a) 50,000 shares granted to the Company’s chief executive officer pursuant to an amended employment agreement dated March 24, 2010, and (b) 12,466 shares granted to directors. The fair value of stock grants is as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Grant	Shares	Fair Value	Shares	Fair Value	Shares	Fair Value	Shares	Fair Value
Chief Executive Officer	-	$              -	-	$              -	-	$              -	50,000	$  112,000
Directors	-	-	4,588	10,000	-	-	12,466	31,129
	-	$              -	4,588	$    10,000	-	$              -	62,466	$  143,129

The fair value of stock grants has been included in the Condensed Consolidated Statement of Operations and Comprehensive Income within other operating expenses.

Stock Options

In December 2005, the Company’s shareholders ratified the adoption of the 2005 Equity Participation Plan (the “2005 Plan”), which provides for the issuance of incentive stock options, non-statutory stock options and restricted stock. Under the 2005 Plan, a maximum of 300,000 shares of Common Stock were permitted to be issued pursuant to options granted and restricted stock issued. In March 2010, the Board of Directors of the Company increased the number of shares of Common Stock authorized to be issued pursuant to the 2005 Plan to 550,000, subject to stockholder approval. In June 2010, the stockholders approved the increase to 550,000 shares. Incentive stock options granted under the 2005 Plan expire no later than ten years from date of grant (except no later than five years for a grant to a 10% stockholder). The Board of Directors or the Stock Option Committee will determine the expiration date with respect to non-statutory options, and the vesting provisions for restricted stock, granted under the 2005 Plan.

The results of operations for the nine months and three months ended September 30, 2011 include share-based stock option compensation expense totaling approximately $86,000 and $21,000, respectively. The results of operations for the nine months and three months ended September 30, 2010 include share-based stock option compensation expense totaling approximately $183,000 and $45,000, respectively. Share-based compensation expense related to stock options is net of estimated forfeitures of 21% for the nine months and three months ended September 30, 2011. Share-based compensation expense related to stock options is net of estimated forfeitures of 23% for the nine months and three months ended September 30, 2010. Such amounts have been included in the Condensed Consolidated Statements of Operations and Comprehensive Income within other operating expenses.

Stock option compensation expense in 2011 and 2010 is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award. The weighted average estimated fair value of stock options granted during the nine months ended September 30, 2010 was $2.04 per share. The fair value of options at the grant date was estimated using the Black-Scholes option-pricing method. No stock options were granted during the nine months ended September 30, 2011. The following weighted average assumptions were used for grants during the nine months ended September 30, 2010:

Dividend Yield	0.00	%
Volatility	101.25	%
Risk-Free Interest Rate	2.62	%
Expected Life	5 years

A summary of option activity under the Company’s 1998 Stock Option Plan (terminated in November, 2008) and the 2005 Plan as of September 30, 2011, and changes during the nine months then ended, is as follows:

Stock Options	Number of Shares	Weighted Average Exercise Price per Share	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2011	393,865	$               2.32	3.28	$     463,465
Granted		$                -	-	$                -
Exercised	-	$                  -	-	$                 -
Forfeited	-	$                  -	-	$                 -
Outstanding at September 30, 2011	393,865	$               2.32	2.53	$     455,588
Vested and Exercisable at September 30, 2011	269,432	$               2.26	2.17	$     329,293

The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2011 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s Common Stock for the options that had exercise prices that were lower than the $3.48 closing price of the Company’s Common Stock on September 30, 2011. No stock options were exercised in the nine months ended September 30, 2011 and 2010.

As of September 30, 2011, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $75,000. Unamortized compensation cost as of September 30, 2011 is expected to be recognized over a remaining weighted-average vesting period of 1.21 years.