NOTE 4 – STOCK-BASED COMPENSATION

Stock-option compensation

The Company accounts for stock-based compensation, including options and non-vested shares, according to the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Share Based Payment.”

Stock-option compensation expense is attributable to the granting of, and the remaining requisite service periods of, stock options.Compensation expense attributable to stock-options was approximately $104,000 and $40,000, respectively, during the three-month periods ended June 30, 2013 and 2012. Compensation expense attributable to stock-options was approximately $151,000 and $87,000, respectively during the six-month periods ended June 30, 2013 and 2012. The compensation expense is recognized in selling, general and administrative expenses on the Company’s statements of income on a straight-line basis over the vesting periods. The exercisability of the respective non-vested options, which are at pre-determined dates on a calendar year, do not necessarily correspond to the period(s) in which straight-line amortization of compensation cost is recorded. As of June 30, 2013, the Company had approximately $509,000 of total unrecognized compensation cost related to non-vested awards granted under its stock-based plans, which it expects to recognize over a weighted-average period of 1.4 years.

The expected term of stock options is based on historical exercises and terminations. The volatility is determined using historical volatilities based on historical stock prices. The dividend yield is 0%, as the Company has historically not declared dividends and does not have any current plans to declare any in the future.

On April 11, 2013 (“Grant Date”), the compensation committee of Company’s Board of Directors authorized the issuance of 71,500 options to purchase shares of the Company’s Class A Common Stock under the Company’s 2012 Stock Incentive Plan. The options expire ten years from the Grant Date. The Company granted 15,000 of these options to its Chief Operating Officer/Chief Financial Officer, with the balance to non-executive employees of the Company. All options granted on the Grant Date vest one-third on each of the first three anniversaries of the Grant Date. Further, all options granted on the Grant Date have an exercise price of $8.21, which was the closing price of the Company’s common stock on the Grant Date.

The Company estimated the fair value of these options using the following assumption:

	April 11, 2013
Risk-free interest rate		1.82	%
Expected term (in years)		10	years
Volatility		81.27	%
Dividend yield		0	%
Weighted-average fair value of options granted	$	6.72

The following is a summary of the changes in outstanding options during the six-month period ended June 30, 2013:

			Weighted		Weighted Average
			Average		Remaining		Aggregate
			Exercise		Contractual Life		Intrinsic
	Option Shares		Price		(Years)		Value
Outstanding, January 1, 2013		584,688	$	6.48		5.4	$	758,000
Granted		71,500		8.21
Exercised		(22,000)		3.80
Forfeited		—
Expired		—
Outstanding, June 30, 2013		634,188	$	6.77		5.4	$	1,326,291

Vested, June 30, 2013		489,355	$	6.94		4.3	$	1,042,592

The following is a summary of changes in non-vested shares for the six months ended June 30, 2013:

			Weighted Average Grant-
	Option Shares		Date Fair Value
Non-vested shares, January 1, 2013		141,000	$	2.94
Granted		71,500		6.72
Vested		(67,667)		2.92
Forfeited
Non-vested shares and expected to vest, June 30, 2013		144,833	$	4.81

The number of shares of Common Stock available for issuance under the 2012 Stock Incentive Plan as of June 30, 2013 was 199,512. At June 30, 2013, there were 113,500 options outstanding issued under the 2012 Stock Incentive Plan and 520,688 options outstanding issued under the 2002 Stock Incentive Plan.

Restricted Stock

On May 28, 2013, the Company granted 666 restricted shares of its common stock to each non-employee member of its Board of Directors totaling 3,330 restricted shares. These restricted shares cannot be traded earlier than the first anniversary of the grant date. The Company determined the fair value of these shares to be $8.95, which was the closing price of the Company’s Common Stock on the date of the grant. The Company will recognize non-cash compensation expense of approximately $2,500 per month in its selling, general and administrative expenses through May 2014.

Treasury Stock

On January 31, 2013, the Company received 2,585 shares of its Class A Common Stock, tendered as payment for the exercise by an employee of options to purchase 5,500 shares of Class A Common Stock. The value of this stock, based on the then-current stock price, was approximately $22,000, and the Company recorded the transaction as an increase in Treasury Stock.