NOTE 8 - Stock Options

In December 2002, the stockholders approved the 2002 Employee Stock Option Plan (the 2002 Plan). The 2002 Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 1,836,000 shares of the Company's common stock to be acquired by the holders of such awards. Under the 2002 Plan, the Company may grant stock options, which are intended to qualify as incentive stock options (ISOs), to key employees. Any plan participant who is granted ISOs and possesses more than 10% of the voting rights of the Company's outstanding common stock must be granted an option with a price of at least 110% of the fair market value on the date of grant.

Under the 2002 Plan, stock options have been granted to key employees with a term of 10 years at an exercise price equal to the fair market value on the date of grant and are exercisable in whole or in part at 20% per year from the date of grant. At September 30, 2012, 1,471,480 stock options were granted, 364,520 stock options were available for grant, and 1,353,140 stock options were exercisable under this plan.

No options were granted during the three months ended September 30, 2012 or 2011.

The following table reflects activity under the 2002 Plan for the three months ended September 30,

	2012				2011
	Options		Weighted average exercise price		Options		Weighted average exercise price
Outstanding, beginning of period		1,380,140	$	2.95		1,380,140	$	2.95
Granted		--		--		--		--
Terminated		--		--		--		--
Exercised		27,000		1.76		--		--
Outstanding, end of period		1,353,140	$	2.95		1,380,140	$	2.95
Exercisable, end of period		1,353,140	$	2.95		1,372,140	$	2.93
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised		36,000				n/a
Total intrinsic value of options outstanding	$	1,459,000			$	407,000
Total intrinsic value of options exercisable	$	1,459,000			$	407,000

27,000 options were exercised during the three months ended September 30, 2012 and no options were exercised during the three months ended September 30, 2011. This exercise was paid for with 13,807 shares of the Company’s common stock which was retired upon receipt. Cash received from option exercises for each of the three months ended September 30, 2012 and 2011 was $0 and the actual tax benefit realized for the tax deductions from option exercises totaled $0 for both of these periods.

The following table summarizes information about stock options outstanding under the 2002 Plan at September 30, 2012:

	Options outstanding			Options exercisable
Range of exercise prices	Number outstanding at September 30, 2012	Weighted average remaining contractual life	Weighted average exercise price	Number exercisable at September 30, 2012	Weighted average exercise price
$ 0.72 - $ 4.00	987,390	0.8	1.89	987,390	1.89
$ 4.01 - $ 7.50	328,250	4.3	5.29	328,250	5.29
$ 7.51 - $11.16	37,500	3.5	11.16	37,500	11.16
	1,353,140	1.7	2.97	1,353,140	2.97

As of September 30, 2012, there was no unearned stock-based compensation cost related to non-vested share-based compensation arrangements granted under the 2002 Plan. All options outstanding under the 2002 Plan were vested as of the beginning of the current period; therefore, the total fair value of the options vested during the three months ended September 30, 2012 under the 2002 Plan was $0.

In September 2000, the stockholders approved a 10 year extension of the already existing 1990 non-employee stock option plan (the 2000 Plan) to encourage non-employee directors and consultants of the Company to invest in the Company's stock. This plan expired in September 2010. No further options may be granted under the 2000 Plan. The 2000 Plan provided for the granting of non-qualified stock options, the exercise of which would allow up to an aggregate of 270,000 shares of the Company's common stock to be acquired by the holders of the stock options. The 2000 Plan provided that the option price will not be less than 100% of the fair market value of the stock at the date of grant. Outstanding options are exercisable at 20% per year and expire five years after the date of grant. Compensation cost was recognized for the fair value of the options granted to non-employee directors and consultants as of the date of grant.

The following table reflects activity under the 2000 Plan for the three months ended September 30,

	2012				2011
	Options		Weighted average exercise price		Options		Weighted average exercise price
Outstanding, beginning of period		30,000	$	5.03		30,000	$	5.03
Granted		--		--		--		--
Terminated		--		--		--		--
Exercised		--		--		--		--
Outstanding, end of period		30,000	$	5.03		30,000	$	5.03
Exercisable, end of period		30,000	$	5.03		30,000	$	5.03
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	0			$	0
Total intrinsic value of options exercisable	$	0			$	0

As of September 30, 2012, there was no unearned stock-based compensation cost related to non-vested share-based compensation arrangements granted under the 2000 Plan. All options outstanding under the 2000 Plan were vested as of the beginning of the current period; therefore, the total fair value of the options vested during the three months ended September 30, 2012 under the 2000 Plan was $0.