9. Stock Options

At December 31, 2013, we had three stock-based compensation plans, which are described below. These plans were developed to retain and attract key employees and directors.

In 1995, we adopted our 1995 Stock Option Plan (the “1995 Plan”), which provides for the issuance of up to 400,000 shares of common stock upon exercise of options granted pursuant to the 1995 Plan. In 2000 and 2001, our stockholders approved to increase the overall number of shares available for issuance pursuant to the plan to a total of 825,000 shares of common stock. The 1995 Plan provides for the issuance of both non-qualified and incentive stock options to our employees, officers, and employee-directors. The 1995 Plan expired by its terms on March 21, 2005 and no options were available for future issuance after the expiration. At December 31, 2013, 67,365 employee options have been exercised and employee options to purchase a total of 172,675 shares of common stock were outstanding.

In 1995, we adopted the 1995 Non-Employee Director Stock Option Plan (the “1995 Non-Employee Director Plan”). The 1995 Non-Employee Director Plan provided for the issuance of non-qualified stock options to non-employee directors. The 1995 Non-Employee Director Plan was amended in April 2002 to increase the number of shares available for issuance to 65,000 from 40,000 shares. The 1995 Non-Employee Director Plan expired by its terms on March 21, 2005 and no options were available for future issuance after the expiration. No options have been exercised under the 1995 Non-Employee Director Plan. Non-employee options to purchase a total of 7,500 shares of common stock were outstanding at December 31, 2013. A total of 62,500 options have been granted to directors pursuant to the 1995 Non-Employee Director Plan, of which, 55,000 have been cancelled.

On March 17, 2005, the Board approved the 2005 Stock Incentive Plan (the “2005 Plan”), which was approved by the stockholders on June 14, 2005. The 2005 Plan serves as a replacement for the 1995 Non-Employee Director Plan and the 1995 Plan which expired by their terms on March 21, 2005. The approval of the 2005 Plan had no effect on the 1995 Plans or any options granted pursuant to either plan. All options will continue with their existing terms and will be subject to the 1995 Non-Employee Director Plan or the 1995 Plan, as applicable. Further, the Company will not be able to re-issue any option which is cancelled or terminated under the 1995 Non-Employee Director Plan or the 1995 Plan. The 2005 Plan provided for the issuance of up to 750,000 shares of common stock upon exercise of options granted pursuant to the 2005 Plan. On May 30, 2007, the stockholders approved an Amendment to the 2005 Plan that increased this amount by 750,000 for a total of 1,500,000 shares of common stock that may be issued upon the exercise of options granted pursuant to the 2005 Plan. On May 29, 2008 and May 21, 2009, the stockholders approved an increase of 500,000 shares, respectively, of common stock that may be issued pursuant to the 2005 Plan for a total of 2,500,000 shares. On May 20, 2010, the stockholders approved an additional increase of 500,000 shares of common stock that may be issued pursuant to the 2005 Plan for a total of 3,000,000 shares. On May 19, 2011, the stockholders approved an additional increase of 400,000 shares of common stock that may be issued pursuant to the 2005 Plan for a total of 3,400,000 shares. Finally, on May 17, 2012, the stockholders approved an additional increase of 300,000 shares of common stock that may be issued pursuant to the 2005 Plan for a total of 3,700,000 shares.

The 2005 Plan consists of three separate equity incentive programs: the Discretionary Option Grant Program; the Stock Issuance Program; and the Automatic Option Grant Program for non-employee Board members. Officers and employees, non-employee Board members and independent contractors are eligible to participate in the Discretionary Option Grant and Stock Issuance Programs. Participation in the Automatic Option Grant Program is limited to non-employee members of the Board. Each non-employee Board member will receive an option grant for 10,000 shares of common stock upon initial election or appointment to the Board, provided that such individual has not previously been employed by the Company in the preceding six (6) months. In addition, on the date of each annual stockholders meeting, each Board member will automatically be granted an option to purchase 5,000 shares of common stock, provided he or she has served as a non-employee Board member for at least six months. At December 31, 2013, 297,001 options had been exercised and options to purchase a total of 2,864,500 shares of common stock were outstanding. A total of 3,553,500 options had been granted under the 2005 Plan, of which 391,999 have been cancelled and options for 538,499 shares remained available for future grant. No shares have been issued pursuant to the Stock Issuance Program.

Common shares reserved for future issuance, including conversions of preferred stock, outstanding options and options available for future grant under all of the stock option plans totaled 4,747,102 shares at December 31, 2013 as follows, in thousands:

(In thousands)		Common Shares Reserved for Future Issuance

Preferred Stock		1,164
1995 Plan		172
1995 Non-Employee Director Plan		8
2005 Plan		3,403
Total		4,747

The Compensation Committee of our Board of Directors determines for all employee options, the term of each option, option exercise price within limits set forth in the plans, number of shares for which each option is granted and the rate at which each option is exercisable (generally ratably over one, three or five years from grant date). However, the exercise price of any incentive stock option may not be less than the fair market value of the shares on the date granted (or less than 110% of the fair market value in the case of optionees holding more than 10% of our voting stock of the Company), and the term cannot exceed ten years (five years for incentive stock options granted to holders of more than 10% of our voting stock).

Stock Incentive Plan Summary

A summary of our stock option activity and related information for the years ended December 31, 2013 and 2012 is as follows:

	2013				2012
	Number of Options (in thousands)		Weighted Average Exercise Price		Number of Options (in thousands)		Weighted Average Exercise Price

Outstanding at beginning of year	2,779		$	0.78	2,691		$	0.77
Granted at price = market value	219		0.51		223		0.65
Granted at price > market value	75		0.53		105		0.72
Exercised	-		-		(230	)	0.33
Forfeited	(3	)	0.48		-		-
Expired	(25	)	1.99		(10	)	5.21

Outstanding at end of year	3,045		$	0.74	2,779		$	0.78
Options exercisable at end of year	2,396		$	0.78	2,012		$	0.84

Stock Options Outstanding and Exercisable

Information related to stock options outstanding at December 31, 2013, is summarized below:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Outstanding at 12/31/13 (in thousands)	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Exercisable at 12/31/13 (in thousands)	Weighted Average Exercise Price

$ 0.20-$0.50	1,831	4.41 years	$	0.34	1,623	$	0.32
$ 0.51-$1.00	846	5.82 years	$	0.68	413	$	0.70
$ 1.01-$3.00	123	1.44 years	$	2.41	115	$	2.50
$ 3.01-$5.44	245	1.34 years	$	3.11	245	$	3.11
	3,045	4.44 years	$	0.74	2,396	$	0.78

Summarized information about outstanding stock options as of December 31, 2013, that are fully vested and those that are expected to vest in the future as well as stock options that are fully vested and currently exercisable, are as follows:

	Outstanding Stock Options (Fully Vested and Expected to Vest)*		Options that are Exercisable
As of December 31, 2013
Number of outstanding options	3,045		2,396
Weighted average remaining contractual life	4.44		3.76
Weighted average exercise price per share	$	0.74	$	.78
Intrinsic value (in thousands)	$	2,250	$	1,868

* Includes effects of expected forfeitures

As of December 31, 2013, the total unrecognized compensation cost related to non-vested options not yet recognized in the statement of operations totaled approximately $84 thousand (including expected forfeitures) and the weighted average period over which these awards are expected to vest was .75 years.