STOCK OPTIONS

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

NOTE 16. STOCK OPTIONS

On October 30, 2007, our stockholders approved and the Board of Directors adopted an amendment to the 2003 Executive and Employee Stock Option Plan (the "Plan") to increase the maximum aggregate number of shares of common stock reserved for issuance under the Plan from 1.2 million shares (already reserved against outstanding options) to 1.7 million shares. Except for the increase in the number of shares covered by the Plan, the Plan remained otherwise unchanged. In 2001, the Board of Directors adopted the 2001 Executive and Employee Stock Option Plan which reserved for issuance 1,200,000 stock options. Stock options typically have a ten-year life and currently vest over a seven year period.

In July of 2012, the stockholders approved the 2012 Share Incentive Plan covering a total of 750,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2015 approximately 40,333 remain to be issued in this plan.

In July of 2015, the stockholders approved the 2015 Executive and Employee Stock Option Plan covering a total of 2,000,000 shares of common stock issuable upon exercise of options to be granted under the plan. At December 31, 2015 approximately 1,479,078 remain to be issued in this plan.

The status of our stock options and stock awards are summarized as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding at December 31, 2013		2,467,046		$	3.55
Granted		592,000		$	3.88
Exercised		(107,000	)	$	2.17
Cancelled and Forfeited		(87,857	)	$	2.80
Outstanding at December 31, 2014		2,864,189		$	3.69
Granted		830,922		$	2.21
Exercised		(97,500	)	$	2.25
Cancelled and Forfeited		(466,164	)	$	3.57
Outstanding at December 31, 2015		3,131,447		$	3.38
Exercisable at December 31, 2015		1,424,036		$	4.28

The number and weighted average grant-date fair values of options non-vested at the beginning and end of 2015, as well as options granted, vested and forfeited during the year was as follows:

Exercise Prices 2014 Number Outstanding 2014 Options Exercisable Granted Exercised Vested Cancelled Forfeited 2015 Number Outstanding 2015 Options Exercisable Weighted Average Remaining Contractual Life

$	2.25	309,500	309,500	-	97,500	-	212,000	-	-	-	-
$	2.93	35,000	35,000	-	-	-	35,000	-	-	-	-
$	6.93	20,000	20,000	-	-	-	-	-	20,000	20,000	1
$	8.66	97,857	97,857	-	-	-	7,858	-	89,999	89,999	2
$	7.10	12,125	12,125	-	-	-	-	-	12,125	12,125	2
$	7.68	7,500	7,500	-	-	-	-	-	7,500	7,500	2
$	7.18	50,000	50,000	-	-	-	-	-	50,000	50,000	3
$	7.33	131,190	114,346	-	-	16,844	27,135	-	104,055	104,055	3
$	6.60	500	500	-	-	-	-	-	500	500	4
$	8.32	61,428	48,060	-	-	357	24,286	-	37,142	24,131	4
$	7.85	7,500	5,357	-	-	1,071	-	-	7,500	6,428	4
$	7.45	100,000	100,000	-	-	-	-	-	100,000	100,000	5
$	6.00	30,000	24,000	-	-	6,000	-	-	30,000	30,000	5
$	2.46	68,446	58,704	-	-	1,428	27,731	-	40,715	32,401	5
$	1.89	50,000	28,572	-	-	7,143	-	-	50,000	35,715	5
$	3.08	10,000	5,716	-	-	1,429	-	-	10,000	7,145	5
$	2.81	15,000	6,429	-	-	2,143	-	-	15,000	8,572	6
$	2.80	7,143	3,877	-	-	714	-	-	7,143	4,591	6
$	2.79	46,000	33,334	-	-	10,667	-	-	46,000	44,001	7
$	2.54	216,000	92,933	-	-	34,400	16,404	-	199,596	110,929	7
$	3.79	100,000	40,000	-	-	20,000	-	-	100,000	60,000	7
$	2.50	10,000	2,000	-	-	2,000	-	-	10,000	4,000	8
$	6.00	50,000	37,778	-	-	6,000	-	-	50,000	43,778	8
$	2.97	42,000	27,333	-	-	7,333	-	-	42,000	34,666	8
$	2.20	45,000	28,333	-	-	8,333	-	-	45,000	36,666	8
$	2.09	750,000	187,500	-	-	187,500	-	-	750,000	375,000	8
$	3.90	213,000	-	-	-	53,250	-	-	213,000	53,250	9
$	3.81	169,000	-	-	-	45,250	-	105,750	63,250	45,250	9
$	3.63	35,000	-	-	-	8,750	-	-	35,000	8,750	9
$	4.30	50,000	-	-	-	12,500	-	-	50,000	12,500	9
$	4.05	30,000	-	-	-	7,500	-	-	30,000	7,500	9
$	4.07	45,000	-	-	-	8,750	-	10,000	35,000	8,750	9
$	3.50	50,000	-	-	-	12,500	-	-	50,000	12,500	9
$	2.25	-	-	100,000	-	33,333	-	-	100,000	33,333	10
$	1.95	-	-	75,000	-	-	-	-	75,000	-	10
$	2.13	-	-	65,000	-	-	-	-	65,000	-	10
$	2.00	-	-	225,922	-	-	-	-	225,922	-	10
$	1.77	-	-	155,000	-	-	-	-	155,000	-	10
$	2.87	-	-	100,000	-	-	-	-	100,000	-	10
$	2.48	-	-	10,000	-	-	-	-	10,000	-	10
$	2.78	-	-	10,000	-	-	-	-	10,000	-	10
$	2.30	-	-	50,000	-	-	-	-	50,000	-	10
$	3.78	-	-	20,000	-	-	-	-	20,000	-	10
$	3.38	-	-	20,000	-	-	-	-	20,000	-	10
		2,864,189	1,376,754	830,922	97,500	495,196	350,414	115,750	3,131,447	1,424,036

	Number of Options			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2015		1,487,435		$	3.11
Granted in 2015		830,922		$	2.21
Vested in 2015		(495,196	)	$	3.06
Forfeited in 2015		(115,750	)	$	3.83
Non-vested at December 31, 2015		1,707,411

Common shares required to be issued upon the exercise of stock options and warrants would be issued from our authorized and unissued shares. We calculated the fair value of issued options utilizing a trinomial lattice with an expected life calculated via the simplified method as we do not have sufficient history to determine actual expected life.

The grant date fair value of options granted in 2015 was estimated on the grant date using a trinomial lattice option-pricing model and the following assumptions: expected volatility of 53% - 54%, expected term of 4-10 years, risk-free interest rates of 0.2% - 1.58%, and expected dividend yield of 0%.

The grant date fair value of options granted in 2014 was estimated on the grant date using a trinomial lattice option-pricing model and the following assumptions: expected volatility of 53% - 54%, expected term of 4-10 years, risk-free interest rates of 0.6%, and expected dividend yield of 0%.

The grant date fair value of options granted in 2013 was estimated on the grant date using both binomial and trinomial lattice option-pricing model and the following assumptions: expected volatility of 43% - 47%, expected term of 3-5 years, risk-free interest rates of 0.4% - 0.6%, and expected dividend yield of 0%.

As of December 31, 2015, the aggregate intrinsic value of all stock options outstanding and expected to vest was approximately $102,992 and the aggregate intrinsic value of currently exercisable stock options was approximately $11,250. The intrinsic value of each option share is the difference between the fair market value of our common stock and the exercise price of such option share to the extent it is "in-the-money". Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $2.10 closing stock price of our common stock on December 31, 2015, the last trading day of 2015. The total number of in-the-money options outstanding and exercisable as of December 31, 2015 was approximately 410,715.

As of December 31, 2014, the aggregate intrinsic value of all stock options outstanding and expected to vest was approximately $2,265,825 and the aggregate intrinsic value of currently exercisable stock options was approximately $1,101,468. The intrinsic value of each option share is the difference between the fair market value of our common stock and the exercise price of such option share to the extent it is "in-the-money". Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $3.68 closing stock price of our common stock on December 31, 2014, the last trading day of 2014. The total number of in-the-money options outstanding and exercisable as of December 31, 2014 was approximately 819,231.

The total intrinsic value of options exercised during the years ended December 31, 2015, 2014, and 2013 was approximately $51,575, $229,135, and $76,000, respectively. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the options. The total cash proceeds received from the exercise of stock options was approximately $209,250 and $87,475, and $48,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

The total fair value of options granted during the years ended December 31, 2015, 2014, and 2013 was approximately $932,771, $1,107,280, and $672,000, respectively. The total fair value of option shares vested during the years ended December 31, 2015, 2014, and 2013, was approximately $612,464, $412,638, and $637,000, respectively.

During the year ended December 31, 2015, we issued 33,520 common shares in exchange for 114,500 non-employee stock options and 80,980 common shares (via stock swaps).

During the year ended December 31, 2014, we issued 73,699 common shares in exchange for 107,000 employee and non-employee stock options and 33,301 common shares (via stock swaps). Net proceeds from the issuance of common shares along with the shares received in the stock swap exercises were approximately $80,475 for the year ended December 31, 2014.

Stock compensation cost recognized for the years ended December 31, 2015, 2014, and 2013 was approximately $575,000, $388,000, and $506,000, respectively. As of December 31, 2015, there was approximately $1,570,000 of total unrecognized stock-based compensation cost, related to unvested stock options granted under the Amended Plan. This cost is expected to be recognized over a weighted-average period of approximately 4 years.

Allocation of stock based compensation expense for the fiscal years ended December 31, 2015, 2014, and 2013 was as follows (in thousands):

	2015		2014		2013
Cost of Sales	$	3	$	8	$	12
Research and development		39		51		34
Salaries and related costs		526		329		460
Total	$	568	$	388	$	506