Note H - Stock Options

On February 9, 1999, the Board of Directors approved an option program for non-employee Directors.

The program was amended in 2001 and 2005 to provide for the annual granting to each non-employee Director of five year options to purchase 1,500 shares of common stock, exercisable at the end of one year at the market value of the shares of common stock on the date of grant. Also, the Chairman of the Board is awarded annually five year options to purchase an additional 2,500 shares. Options outstanding under this plan as of September 30, 2013 and 2012 are 0 and 8,500, respectively.

No further options are being issued under the 1999 Plan.

On May 14, 2009, the Stockholders approved the 2009 Incentive and Non-Statutory Stock Option Plan (the “2009 Plan”).

The 2009 Plan is administered by the Board of Directors who is authorized to grant incentive stock options (“ISO’s”) to Officers and employees of the Company and non-qualified options (“NQO’s”) for certain other individuals providing services to or serving as Directors of the Company

The maximum number of shares of the Company’s Stock that may be issued under the 2009 Plan is 125,000 shares. Options granted and outstanding under this plan are as follows:


Year	Granted		Outstanding
Before 2011		23,000		17,000
2011		10,000		10,000
2012		10,000		10,000

		43,000		37,000

The aggregate fair market value (determined at the time an ISO is granted) of the Common Stock with respect to which ISO’s are exercisable for the first time by any person during any calendar year under the Plans shall not exceed $100,000.

The ISO’s are exercisable 20% of the authorized amount immediately and 20% in each of the following four years. ISO’s granted to an optionee terminate 30 to 90 days after termination of employment or other relationship, except that ISO’s terminate the earlier of the expiration date of the option, or 90 to 180 days in the event of death and 180 days to one year in the event of disability.

In 2003 and 2008 the company reached the maximum number of stock options allowed to be issued under the respective current stock option plan. The company therefore issued 60,000 stock options outside of aforementioned plans. Options outstanding outside a specific plan as of September 30, 2013 and 2012 are 60,000 and 65,000, respectively.

A summary of the status of the Company’s stock options is as follows:


	Number of Shares			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contractual Life (Yrs)
Outstanding At December 31, 2012		105,500		$	2.10		4.50
Granted		—		$	—
Exercised		(3,000	)	$	2.18
Expired/Forfeited		(5,500	)	$	2.18

Outstanding At September 30, 2013		97,000		$	2.09		4.11


Vested/Exercisable At September 30, 2013		85,000		$	2.25		3.95

A summary of the status of the Company’s nonvested stock options is as follows:


	Number of Shares		Wtd. Avg. Grant Date Fair Value
Nonvested, At December 31, 2012		12,000	$	0.28
Granted		—	$	—
Vested		—	$	—

Nonvested, At September 30, 2013		12,000	$	0.28


Expired/Forfeited During Period		5,500	$	0.75

The Company estimated the fair value at the date of grant using the Black Scholes option valuation model with the following assumptions:


	Nine Months Ended September 30,
	2013	2012
Risk Free Interest Rate	—	0.62-1.04%
Expected Volatility	—	80.06-80.25%
Expected Life	—	5 years
Dividend Yield	—	0.00%

Option valuation models require the input of highly subjective assumptions including the expected option life. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For the three months ended September 30, 2013 and 2012, 1,500 and 1,500 stock options were exercised under a cashless program resulting in the issuance of 834 and 938 shares and an excess tax benefit of $1,100 and $1,700, respectively. For the nine months ended September 30, 2013 and 2012, 3,000 and 36,000 stock options were exercised under a cashless program resulting in the issuance of 1,682 and 22,808 shares and an excess tax benefit of $2,300 and $42,000, respectively.

The Company recognized $831 and $11,821 stock-based compensation expense for the three months ended September 30, 2013 and 2012, respectively and $18,971 and $32,067 for the nine months ended September 30, 2013 and 2012, respectively.

As of September 30, 2013, there was $832 of unrecognized compensation costs related to non-vested stock options, which will be amortized to expense over future periods. The Company expects to recognize that cost over the weighted average vesting period of 0.25 years.