4.	Accounting for Stock-Based Compensation:

Stock based compensation is recorded in accordance with ASC Topic 718, Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payments to employees, including grants of stock and employee stock options, based on estimated fair values.

The Company granted options to purchase 10,000 shares of common stock during the nine months ended September 30, 2011. No options were granted during the nine months ended September 30, 2010.

The following tables summarize stock option activity for the nine months ended September 30, 2011 and 2010.

2011
						Weighted
						Average
				Weighted		Remaining		Aggregate
	Number of			Average		Contractual		Intrinsic
	Options			Option Price		Term (years)		Value
Balance at January 1		718,343		$	3.85
Granted		10,000			5.85
Exercised		(40,000	)		5.14
Expired/Forfeited		(25,650	)		6.86

Balance at September 30		662,693		$	3.69		1.32	$	3,117,657

Vested and exercisable		644,419		$	3.62		1.27	$	3,071,789

2010
						Weighted
						Average
				Weighted		Remaining		Aggregate
	Number of			Average		Contractual		Intrinsic
	Options			Option Price		Term (years)		Value
Balance at January 1		894,785		$	4.29
Granted		-			-
Exercised		(11,513	)		4.12
Expired/Forfeited		(30,000	)		6.49

Balance at September 30		853,272		$	4.22		1.82	$	1,669,401

Vested and exercisable		825,572		$	4.16		1.74	$	1,662,347

The aggregate intrinsic value of options exercised during the nine months ended September 30, 2011 and September 30, 2010 were $10,400 and $29,074, respectively. There were 18,274 and 27,700 nonvested stock options outstanding as of September 30, 2011 and 2010, respectively. See Note 14 regarding the vesting of these options in connection with the merger agreement.

The following table summarizes stock-based compensation expense related to all share-based payments recognized in the condensed consolidated statements of income (loss).

	Three Months			Three Months
	Ended September 30,			Ended September 30
	2011			2010
Stock options	$	7,310		$	8,000
Stock grants – other		-			64,663
Service based awards		23,598			32,037
Performance based awards		-			(67,129	)
Tax benefit		(28,016	)		(15,393	)
Stock-based compensation expense, net of tax	$	2,892		$	22,178

	Nine Months			Nine Months
	Ended September 30,			Ended September 30
	2011			2010
Stock options	$	43,411		$	8,000
Stock grants – other		32,765			86,422
Service based awards		70,796			96,109
Performance based awards		-			7,459
Tax benefit		(83,759	)		(81,165	)
Stock-based compensation expense, net of tax	$	63,213		$	116,825

Stock Grants - Other

The non-employee members of the Board of Directors have an option to elect at the beginning of each calendar year to receive either shares of common stock or cash at the end of each quarter as compensation for services provided as members of the Board of Directors and other committees. Share grants issued vest immediately, but are subject to a one-year restriction on transfer. In accordance with the merger agreement executed in September 2011 (see Note 14), after June 30, 2011, the non-employee members of the Board of Directors no longer have an option to receive stock as compensation for services.

Service Based Awards

In January 2006, May 2007, January 2009 and December 2010 the Company granted 50,000, 22,000, 12,000 (net of 9,500 shares waived by an executive) and 46,500 restricted shares, respectively, to certain executives in respect of services rendered but at no monetary cost. These shares vest over periods ranging from 2 to 5 years, on December 31 of each year. The Company records the compensation expense on a straight-line basis over the vesting period. Fair value for restricted stock awards is based on the Company's closing common stock price on the date of grant. There were 84,000 shares and 63,000 shares vested as of September 30, 2011 and 2010, respectively. The aggregate grant date fair value of restricted stock grants was $830,845. The vesting period of the January 2006 and May 2007 grants expired on December 31, 2010. As of September 30, 2011 and 2010, the Company had approximately $212,000 and $34,000, respectively, of total unrecognized compensation costs related to nonvested restricted stock units expected to be recognized over a weighted average period of 2.25 years. See Note 14 regarding the vesting of these restricted stock units in connection with the merger agreement.

Performance Based Awards

In January 2006 and May 2007, respectively, the Company granted share awards for up to 90,000 shares (up to 18,000 shares per year through December 31, 2010) and 46,000 shares (up to 11,500 shares per year through December 31, 2010) to certain executives. Vesting of such shares was contingent upon the Company achieving certain specified consolidated gross revenue and Earnings before Interest and Taxes (“EBIT”) objectives in each of the fiscal years ending December 31, 2006 through December 31, 2010. The fair value of the performance shares (aggregate value of $909,400) was based on the closing trade value of the Company’s stock on the date of grant and assumed that performance goals would be achieved. The fair value of the shares was expensed over the performance period for those shares that were expected to ultimately vest. If such objectives were not met, no compensation cost was recognized and any recognized compensation cost was reversed. All performance based awards were either earned or forfeited as of December 31, 2010. During 2011, there were no performance shares vesting and there were no unrecognized compensation costs related to performance share awards. As of September 30, 2010, 57,250 shares were vested and there was approximately $37,000 of total unrecognized compensation costs related to nonvested share awards.