Note F - Common Stock and Stock-based Compensation

12 Months Ended

Dec. 31, 2016

Notes

Note F - Common Stock and Stock-based Compensation

NOTE F — COMMON STOCK AND STOCK-BASED COMPENSATION

COMMON STOCK

In December 2016, employee stock options for 2,752,848 shares of the Company’s common stock were exercised by reducing deferred compensation payable by $8,259.  No employee stock options were exercised during the year 2015.

STOCK-BASED COMPENSATION

The Company does not have a written employee stock option plan.  The Company has historically granted only employee stock options with an exercise price equal to the market price of the Company’s stock at the date of grant, a contractual term of ten years, and a vesting period of three years ratably on the first, second and third anniversaries of the date of grant (with limited exceptions).

All employee stock options granted during 2016 and 2015 were nonqualified stock options.  Stock-based compensation is measured at the grant date, based on the calculated fair value of the option, and is recognized as an expense on a straight-line basis over the requisite employee service period (generally the vesting period of the grant).    

The following table summarizes the Company’s employee stock option activity for the years ended December 31, 2016 and 2015:

Schedule of Employee Stock Option Activity
	Options	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate intrinsicvalue
Options outstanding, December 31, 2014	3,295,382	$ .029	8.20	-
Options exercisable, December 31, 2014	1,933,549	$ .025	7.84	$ 50,788
Options granted during the year	186,000	.043	-	-
Options forfeited during the year	(158,500)	.040	-	-
Options expired during the year	(78,000)	.085	-	-
Options outstanding, December 31, 2015	3,244,882	$.028	7.40	-
Options exercisable, December 31, 2015	2,477,215	$.026	7.26	$ 9,089
Options granted during the year	48,000	.030		-
Options exercised during the year	(2,752,848)	.003		-
Options forfeited during the year	(21,000)	.031		-
Options expired during the year	(4,100)	0.026		-
Options outstanding, December 31, 2016	514,934	$ .005	6.26	-
Options exercisable, December 31, 2016	425,934	$ .003	5.78	9,350«VRHMJALG

The following table summarizes the Company’s non-vested employee stock option activity for years ended December 31, 2016 and 2015:

	2016	2015
Non-vested options outstanding, beginning of year	727,666	1,361,833
Options granted during the year	48,000	186,000
Options vested during the year	(665,666)	(661,667)
Options forfeited during the year	(21,000)	(158,500)
Non-vested options outstanding, end of year	89,000	727,666

The fair values of the granted options are estimated at the date of grant using the Black-Scholes option pricing model.  In addition to the exercise and grant date prices of the options, certain weighted average assumptions that were used to estimate the fair value of stock option grants in the respective periods are listed in the table below:

	2016	2015
Risk free interest rate	1.25% - 1.29 %	1.42% - 1.53 %
Expected lives (in years)	5	5
Expected volatility	200% - 204 %	209% - 218 %
Dividend yield	0 %	0 %

The following table shows total stock options compensation expense included in the Consolidated Statements of Operations and the effect on basic and diluted earnings per share for the years ended December 31:

	2016	2015
Stock options compensation	$ 53,309	$ 15,471
Impact on income per share:
Basic	$ -	$ -
Assuming dilution	$ -	$ -

During the year 2016, 33,000 employee stock options were granted which will vest one-third on each annual anniversary of the grant date resulting in $157 of stock options compensation.  Stock options compensation of $2,067 recorded in the year 2016 was related to options that were granted in prior years.  During the year 2016, 15,000 employee stock options were granted and forfeited in the same year.  Additionally, 6,000 employee stock options were forfeited that related to options granted in prior years.  At December 31, 2016 there was $2,178 of unrecognized stock options compensation that is expected to be recognized as an expense over a weighted-average period of 3.4 years. 

During the year 2016, 2,968,782 employee stock options with exercise prices ranging from $.01 to $.065 was reduced to $.003.  The Company performed an analysis under ASC 718-20 “stock compensation” and recorded an incremental expense of $51,085.

Also during the year 2016, 2,752,848 and 4,100 of employee stock options were exercised and expired, respectively.

During the year 2015, 30,000 employee stock options were granted which will vest one-third on each annual anniversary of the grant date resulting in $322 of stock options compensation.  During the year 2015, 4,000 employee stock options ere granted which vested during the year resulting in $156 of stock options compensation.  Stock options compensation of $14,993 recorded in the year 2015 was related to options that were granted in prior years.  During the year 2015, 152,000 employee stock options were granted and forfeited in the same year.  Additionally, 6,500 employee stock options were forfeited that related to options granted in prior years.  At December 31, 2015 there was $3,642 of unrecognized stock options compensation that is expected to be recognized as an expense over a weighted-average period of 5.1 years. 

Also during the year 2015, 78,000 of employee stock options were expired.

Common Stock Purchase Warrants – A summary of common stock purchase warrant activity for the years ended December 31, 2016 and 2015 follows:

Outstanding common stock purchase warrants issued to non-employees outstanding at December 31, 2015 are as follows:

Number of shares	Exerciase price	Expiration year
250,000	$ .003	2023

The following table summarizes the Company’s common stock purchase warrant activity for the years ended December 31:

	2016	Weighted Average Exercise Price	2015	Weighted Average Exercise Price
Warrants outstanding, beginning of year	250,000	$ .003	815,000	$ .004
Warrants expired during the year	-	-	(565,000)	-.005
Warrants outstanding, end of year	250,000	$ .003	250,000	$ .003

The 250,000 warrants outstanding at December 31, 2016 were issued as equity compensation for consulting services.

No warrants were granted during the years ended December 31, 2016 and 2015.