12. Stock Options

In October 2000, the Company approved a Stock Incentive Plan which was effective for a ten-year period commencing on October 25, 2000 and ending on October 24, 2010. The aggregate number of shares of Common Stock as to which options and Stock Appreciation Rights may be granted to participants under the original Plan was not to exceed 7,000,000. The most recent amendment to the Plan increasing the number of shares that may be issued under the Plan by 3,500,000 shares and extending the Plan for another ten years was approved by the Company’s Board of Directors on February 1, 2008 and approved by the Company’s shareholders at the Annual Meeting of Stockholders held on June 2, 2008. Options are not transferable, are exercisable for 3 months after voluntary resignation from the Company, and terminate immediately upon involuntary termination from the Company. The purchase price of shares subject to this Plan shall be determined at the time the options are granted, but are not permitted to be less than 85% of the fair market value of such shares on the date of grant. Furthermore, a participant in the Plan may not, immediately prior to the grant of an Incentive Stock Option, own stock in the Company representing more than ten percent of the total voting power of all classes of stock of the Company unless the per share option price specified by the Board for the Incentive Stock Options granted such a participant is at least 110% of the fair market value of the Company’s stock on the date of grant and such option, by its terms, is not exercisable after the expiration of 5 years from the date such stock option is granted.

On March 21, 2016, the Company’s shareholders approved a 1 for 10 reverse stock split, effective with trading on March 24, 2016. All share and per share information in the following tables has been adjusted to reflect the impact of this reverse stock split.

The following table summarizes stock option activity in 2015, 2014, and 2013:



	2015			2014			2013
		Weighted			Weighted			Weighted
		Average			Average			Average
		Exercise			Exercise			Exercise
	Shares	Price		Shares	Price		Shares	Price
Outstanding, beginning of year	90,025	$	5.70	87,025	$	5.90	137,225	$	6.10
Granted	10,000	$	2.40	10,000	$	4.40	7,500	$	5.40
Exercised	—	$	—	—	$	—	—	$	—
Expired/cancelled	(54,400)	$	4.80	(7,000)	$	6.30	(57,700)	$	7.20
Outstanding, end of year	45,625	$	6.10	90,025	$	5.70	87,025	$	5.90
Exercisable, end of year	45,625	$	6.10	90,025	$	5.70	79,025	$	6.00

The following table summarizes information about stock options outstanding and exercisable at December 31, 2015:



Weighted Average Exercise Price		Options Outstanding (shares)	Weighted Average Remaining Contractual Life (years)	Options Exercisable (shares)
$	10.80	5,000	0.3	5,000
$	11.60	1,875	0.3	1,875
$	8.40	1,875	0.5	1,875
$	7.20	1,875	0.8	1,875
$	7.50	1,875	1.0	1,875
$	10.70	1,875	1.3	1,875
$	8.10	1,875	1.5	1,875
$	7.30	1,875	1.8	1,875
$	6.40	1,875	2.0	1,875
$	6.20	1,875	2.2	1,875
$	4.80	1,875	2.5	1,875
$	4.10	1,875	2.8	1,875
$	4.10	2,500	3.0	2,500
$	4.80	2,500	3.2	2,500
$	4.40	2,500	3.5	2,500
$	4.40	2,500	3.8	2,500
$	2.50	2,500	4.0	2,500
$	2.30	2,500	4.2	2,500
$	2.70	2,500	4.5	2,500
$	2.20	2,500	4.8	2,500
		45,625		45,625

During 2015, the Company issued the following options to each of the non-executive directors that remain outstanding as of December 31, 2015. These options vested upon grant date.



Options Issued to
Each Non-executive	Total Options Issued to
Director	Non-executive Directors	Exercise Price		Grant Date	Expiration Date
625	2,500	$	2.50	1/5/2015	1/4/2020
625	2,500	$	2.30	4/1/2015	3/31/2020
625	2,500	$	2.70	7/2/2015	7/1/2020
625	2,500	$	2.20	10/2/2015	10/1/2020

The weighted average fair value per share of options granted in 2015 was $2.40 and 2014 was $2.20 calculated using the Black Scholes option pricing model.

Compensation expense related to stock options was $12,000 in 2015 and was $32,000 in 2014 and $(28,000) in 2013. The 2013 amount was comprised of $32,000 of current year compensation expense offset by reversal of $59,500 previously recognized as compensation expense. This expense is recorded in “General and administrative” in the Consolidated Statements of Operations. The fair value of stock options used to compute share based compensation is the estimated present value at grant date using the Black Scholes option pricing model with weighted average assumptions for 2015 of expected volatility of 61.7%, a risk free interest rate of 2.53% and an expected option life remaining from 0.3 to 4.8 years. The weighted average assumptions for 2014 were expected volatility of 53.3%, a risk free interest rate of 3.27% and an expected option life remaining from 0.1 to 4.8 years. The weighted average assumptions used for 2013 were expected volatility of 47.6%, a risk fee interest rate of 2.97% and an expected option life remaining for 0.1 years to 4.8 years.

On January 4, 2016, options to purchase 2,500 common shares at $1.20 per share were issued to the Company’s non-executive directors. These options fully vested upon grant date and will expire on January 3, 2021. Shares and price per share information has been adjusted to reflect the impact of this reverse stock split.