STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION PLANS

14. 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 2,000,000 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, 2014		December 31, 2013
Common shares reserved for issuance on exercise of options		1,517,500		1,165,000
Shares available for future option grants		482,500		335,000

1997 Employee Stock Option Plan – 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, 2014		December 31, 2013
Common shares reserved for issuance on exercise of options		55,000		87,000
Shares available for future option grants		-		-

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,  2014		December 31,  2013
Common shares reserved for issuance on exercise of options		120,000		120,000
Shares available for future option grants		-		-

Summary of Common Stock Options – The total fair value of shares vested in the years ended December 31, 2014 and December 31, 2013 was $57,291 and $116,365, respectively, of non-cash compensation expense. Of these amounts, $46,113 and $84,550 was included in personnel and consulting expenses, from stock options granted to employees, and vesting during the year ended December 31, 2014 and 2013, respectively.

Also $11,178 and $14,895 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, 2014 and 2013, 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, 2013, the Company granted 50,000 options to non-employee directors which were fully vested upon issuance, and 5,000 options which were fully vested upon issuance to two non-employee directors who had served as chairman, as approved by the Board of Directors. During the year ended December 31, 2013, the Board of Directors extended the expiration dates for all options previously granted to one departing Board member in recognition for service. 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 or 180 days following the Board member’s termination dates. The Company considered the extension as a modification to the option agreements recording incremental compensation expense of $16,920 for the year ended December 31, 2013.

During the quarter ended March 31, 2013, the Company granted 1,000,000 options to the then-CEO. As approved by the Board of Directors, these options granted were expected to vest over a four (4) year period, with 200,000 options vesting upon issuance. Since his resignation on September 26, 2013, expense for the quarters ended March 31, 2013 and June 30, 2013 has been reversed. The 200,000 vested options all expired 90 days from the then-CEO’s resignation date, per the Option Agreement.

During the quarter ended December 31, 2013, the Company granted 1,000,000 options to the current CEO. As approved by the Board of Directors, these options vest over a four (4) year period, with 200,000 options vested upon issuance.

During the quarter ended June 30, 2014, the Company granted 320,000 options to employees. As approved by the Board of Directors, these options vest over a four (4) year period, with 20% of the options vested upon issuance.

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, 2014			Year ended  December 31, 2013
Dividend yield (1)		0.0	%		0.0	%
Expected volatility (2)		118.5% - 122.24	%		99.2% - 110.2	%
Risk-free interest rates (3)		1.19-1.72	%		1.02	%
Expected lives (2)		4-5 years			2-5 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, 2014 and 2013, and changes during the periods then ended is presented below.

	Year ended December 31, 2014							Year ended December 31, 2013
	Shares			Weighted  Average  Exercise  Price		Aggregate  Intrinsic  Values		Shares			Weighted  Average  Exercise  Price		Aggregate  Intrinsic  Values
Outstanding at beginning of period		1,372,000		$	0.50	$			317,000		$	1.85
Granted		362,500			0.39				2,055,000			0.29
Forfeited		(30,500	)		2.03				(1,000,000	)		0.50
Exercised		-							-
Expired or terminated		(11,500	)		2.87				-
Outstanding at end of year		1,692,500		$	0.44	$	80,000		1,372,000		$	0.50	$	240,750
Vested at end of year		844,500		$	0.70	$	32,000		572,000		$	1.10	$	48,750
Nonvested at end of year		848,000		$	0.18	$	48,000		800,000		$	0.08	$	192,000
Weighted average fair value per share of options issued during the year				$	0.26						$	0.21

Generally, we issue new shares of common stock to satisfy stock option exercises.