Stock Options

December

31,

2016,

we had

two

stock-based compensation plans, which are described below. These plans were developed to retain and attract key employees and directors.

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 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. At

December

31,

2015,

768,835

had been exercised and options to purchase a total of

2,185,167

shares of common stock were outstanding. A total of

3,892,000

options had been granted under the

2005

Plan, of which

937,998

have been cancelled. The

2005

Plan expired on

December

31,

2015

and no shares remain for grant.

March

19,

2015,

the Board approved the

2015

Stock Incentive Plan (the

“2015

Plan”), which was approved by the stockholders on

May

14,

2015.

The

2015

Plan serves as a replacement for the

2005

Plan which expired by its terms on

June

14,

2015.

The approval of the

2015

Plan had no effect on the

2005

Plan or any options granted pursuant to the plan. All options will continue with their existing terms and will be subject to the

2005

Plan. Further, the Company will not be able to re-issue any option which is cancelled or terminated under the

2005

Plan. The

2015

Plan provided for the issuance of up to

600,000

shares of common stock upon exercise of options granted pursuant to the

2015

Plan.

The

2015

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

three

(3)

months. In addition, on the date of each annual stockholders meeting, each Board member will automatically be granted an option to purchase

8,000

shares of common stock, provided he or she has served as a non-employee Board member for at least

three

months. At

December

31,

2016,

options had been exercised and options to purchase a total of

69,000

shares of common stock were outstanding. A total of

72,000

options had been granted under the

2015

Plan,

3,000

shares have been cancelled

, and options for

531

,000

shares remained available for future grant.

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

3,852,609

shares at

December

31,

2016

as follows, in thousands:

(In thousands)	Common Shares Reserved for Future Issuance

Preferred Stock		1,067
2015 Plan		600
2005 Plan		2,185
Total		3,852

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

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,

2016

and

2015

is as follows:

	2016					2015
	Number of Options (in thousands)			Weighted Average Exercise Price		Number of Options (in thousands)			Weighted Average Exercise Price

Outstanding at beginning of year		2,598		$	0.63		3,076		$	0.86
Granted at price = market value		69			0.36		43			2.13
Granted at price > market value		—			—		—			—
Exercised		(136	)		0.73		(150	)		0.44
Forfeited		(18	)		1.80		(10	)		1.36
Expired		(259	)		0.35		(361	)		2.77

Outstanding at end of year		2,254		$	0.64		2,598		$	0.63
Options exercisable at end of year		2,079		$	0.59		2,287		$	0.51

Stock Options Outstanding and Exercisable

Information related to stock options outstanding at

December

31,

2016,

is summarized below:

			Options Outstanding						Options Exercisable
Range of Exercise Prices			Outstanding at 12/31/16 (in thousands)		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Exercisable at 12/31/1 6 (in thousands)		Weighted Average Exercise Price

$0.20	-	$0.50		1,296		2.56	$	0.34		1,228	$	0.34
$0.51	-	$1.00		661		2.95	$	0.67		661	$	0.67
$1.01	-	$2.73		297		5.62	$	1.91		190	$	1.89
				2,254		3.07	$	0.64		2,079	$	0.59

Summarized information about outstanding stock options as of

December

31,

2016,

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, 201 6
Number of outstanding options (in thousands)		2,254		2,079
Weighted average remaining contractual life		3.07		2.69
Weighted average exercise price per share	$	0.64	$	0.59
Intrinsic value (in thousands)	$	121	$	116

* Includes effects of expected forfeitures

As of

December

31,

2016,

the total unrecognized compensation cost related to non-vested options not yet recognized in the statement of operations totaled approximately

$37

thousand (including expected forfeitures) and the weighted average period over which these awards are expected to vest was

.84

years.