13. Stock-based Compensation Plans

12 Months Ended

Dec. 31, 2012

Notes

13. Stock-based Compensation Plans

13.       STOCK-BASED COMPENSATION PLANS

2011 Employees', Directors' and Consultants' Stock Option Plan – In May 2011, the Board of Directors approved a new option plan for employees, directors and consultants.  Pursuant to this plan which is administered by a Committee appointed by the Board of Directors, we could grant to qualified employees, directors and consultants either incentive options or nonstatutory options (as defined by the Internal Revenue Service).  The stock options granted per written option agreements approved by the Committee, must have exercise prices not less than 100% of the Fair Market Value of our common stock on the date of the grant.  Up to 1,000,000 common shares are available for grants under this plan.  No options may be granted under this plan after December 31, 2015.

The following information relates to the 2011 Option Plan:

	December 31, 2012	December 31, 2011
Common shares reserved for issuance on exercise of options	110,000	40,000
Shares available for future option grants	890,000	960,000

Employee Stock Option Plans – Pursuant to our 1997 Employees' Stock Option Plan, as amended (the "1997 Option Plan"), we could grant to employees either incentive stock options or nonqualified stock options (as defined by the Internal Revenue Service).  The stock options had to be granted at exercise prices not less than 100% of the fair market value of our common stock at the grant date.  The maximum life of stock options granted under this plan is ten years from the grant date.  The Compensation Committee or the Board of Directors determined vesting provisions when stock options were granted, and stock options granted generally vested over three or four years.  No options could be granted under this plan after September 30, 2007. 

The following information relates to the 1997 Option Plan:

	December 31, 2012	December 31, 2011
Common shares reserved for issuance on exercise of options	57,000	113,000
Shares available for future option grants	-	-

Prior to the 1997 Option Plan, we had a stock option plan that expired on December 31, 2000, after which no option could be granted under the plan.  Pursuant to this plan incentive stock options and nonqualified stock options were granted to key employees.  Incentive stock options could be granted at an exercise price not less than the fair market value of our common stock on the grant date.  Nonqualified stock options could be granted at an exercise price not less than 85% of the fair market value of our common stock on the grant date.  Options generally vested over a period of up to three years after the grant date and expire ten years after the grant date if not terminated earlier.  No common shares remain reserved for issuance on exercise of stock options as of December 31, 2012 and 2011.

2000 Director's Stock Option Plan – Pursuant to our  Directors' Stock Option Plan (the "Directors' Option Plan"), we could grant each non-employee director 10,000 fully vested, nonqualified common stock options when the director first is elected, and 10,000 common stock options on the first business day of January thereafter, as long as the individual is a director.  All such stock options are granted at an option price not less than 100% of the fair market value of the common stock at the grant date.  The maximum life of options granted under this plan is ten years from the grant date.  No options could be granted after January 4, 2010.

The following information relates to the 2000 Directors' Stock Option Plan:

	December 31, 2012	December 31, 2011
Common shares reserved for issuance on exercise of options	150,000	160,000
Shares available for future option grants	-	-

As this plan expired in January 2010, no further option awards can be issued from this plan. 

Summary of Common Stock Options – The total fair value of shares vested in the years ended December 31, 2012 and December 31, 2011 was $138,630 and $67,639, respectively, of non-cash compensation expense.  Of these amounts, $0 and $16,539 was included in personnel and consulting expenses, from stock options granted to employees in prior years, and vesting during the year ended December 31, 2012 and 2011, respectively.  Stock options granted during the year are outstanding only a portion of the year, with the compensation expense recognized for that portion of the year.  As of December 31, 2012, all outstanding options granted to employees were fully vested.

Also $58,630 and $51,280 of noncash compensation expense was included in general and administrative expenses, from stock options granted to directors pursuant to the Directors Option Plan in the years ended December 31, 2012 and 2011, respectively. Since these stock options are fully vested upon grant, the full fair value of the stock options is recorded as expense at the date of grant.  During the year ended December 31, 2012, the Board of Directors extended the expiration dates for all options previously granted to two departing Board members in recognition for their service during the period of managerial transition.  Those options will expire per their original term specified in each individual option agreement, typically either 5 or 10 years from the date of granting, rather than expiring within the specified time period, typically 90 days following the Board members’ termination dates.  The Company considered the extension as a modification to the option agreements recording incremental non-cash compensation of $80,000 included in general and administrative expenses for the year ended December 31, 2012.

We estimated the fair value of each option on the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions:

	Year ended December 31, 2012	Year ended December 31, 2011
Dividend yield (1)	0.0%	0.0%
Expected volatility (2)	86.7% - 87.1%	89.95%
Risk-free interest rates (3)	0.89%	1.96%
Expected lives (2)	5 years	5 years

(1)  We have not paid cash dividends on our common stock since 1981, and currently do not have plans to pay or declare cash dividends.  Consequently, we used an expected dividend rate of zero for the valuations.

(2)  Estimated based on our historical experience.  Volatility was based on historical experience over a period equivalent to the expected life in years.

(3)  Based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted.

A summary of the status of all our common stock options as of December 31, 2012 and 2011, and changes during the periods then ended is presented below.

	Year ended December 31, 2012			Year ended December 31, 2011
	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Values	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Values
Outstanding at beginning of period	313,000	$  2.11	$  7,650	293,750	$  2.18	$  11,800
Granted	70,000	1.24	-	40,000	1.83	-
Forfeited	(66,000)	2.44	-	(3,750)	2.25	-
Exercised	-	-	-	(10,000)	1.01	-
Expired or terminated	-	-	-	(7,000)	5.00	-
Outstanding at end of year	317,000	$  1.85	$  -	313,000	$  2.11	$  7,650
Exercisable at end of year	317,000	$  1.85	$  -	313,000	$  2.11	$  7,650
Weighted average fair value per share of options issued during the year		$  1.18			$  1.28

There were no stock option exercises for the year ended December 31, 2012.  The total intrinsic value of stock options exercised during the year ended December 31, 2011 was $5,000. Total proceeds from stock option exercises were $10,050 during the year ended December 31, 2011.  Generally, we issue new shares of common stock to satisfy stock option exercises.

All outstanding stock options were fully vested at December 31, 2012 and December 31, 2011.

1996 Directors' Stock Participation Plan – Pursuant to the terms of our 1996 Directors' Stock Participation Plan, on the first business day of January of each year, we issue to each non-employee director who has served at least one year as a director, the lesser of 2,500 shares of our common stock or a number of shares of common stock equal to $15,000 on the date such shares are issued.  If an otherwise eligible director terminates as a director before the first business day of the year, we issue such director a number of shares equal to the portion of the year served by that director.  This plan expired on January 3, 2011.  No shares were issued under this plan in the years ended December 31, 2012, or 2011.