NOTE F - COMMON STOCK AND STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2018

Notes

NOTE F - COMMON STOCK AND STOCK-BASED COMPENSATION

NOTE F — COMMON STOCK AND STOCK-BASED COMPENSATION

COMMON STOCK

On September 28, 2018, certain officers and directors and their family members exercised options to purchase 1,750,000 restricted shares of the Company's common stock.  Proceeds from the exercise of the Options were $70,000, which was derived from the reduction of deferred compensation payable the Company owed to these officers and directors.  No employee stock options were exercised during the year 2017.

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 2018 and 2017 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, 2018 and 2017:

Schedule of Employee Stock Option Activity
	Options	Weighted average exercise price	Weighted average remaining contractual life (yrs)	Aggregate intrinsic value
Options outstanding, December 31, 2016	514,934	$ 0.005	6.26
Options exercisable, December 31, 2016	425,934	$ 0.003	5.78	$ 9,350
Options granted during the year	1,626,000	0.007
Options forfeited during the year	(23,000)	0.007
Options expired during the year	(7,100)	0.003
Options outstanding, December 31, 2017	2,110,834	$ 0.006	8.18
Options exercisable, December 31, 2017	626,834	$ 0.003	6.03	$ 22,902
Options granted during the year	2,013,000	0.040
Options exercised during the year	(1,750,000)	.040
Options expired during the year	(3,000)	0.003
Options outstanding, December 31, 2018	2,370,834	$ 0.010	7.45
Options exercisable, December 31, 2018	1,126,167	$ 0.005	6.39	$ 34,623

The following table summarizes the Company’s non-vested employee stock option activity for years ended December 31, 2018 and 2017:

	2018	2017
Non-vested options outstanding, beginning of year	1,484,000	89,000
Options granted during the year	2,013,000	1,626,000
Options vested during the year	(2,252,333)	(208,000)
Options forfeited during the year	-	(23,000)
Non-vested options outstanding, end of year	1,244,667	1,484,000

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:

	2018	2017
Risk free interest rate	2.65%–2.77 %	1.80%-2.23%
Expected lives (in years)	5	5
Expected volatility	163%-178%	173%-267%
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:

	2018	2017
Stock options compensation	$75,134	$12,659
Impact on income per share:
Basic and diluted	$-	$-

During the year 2018, 2,013,000 employee stock options were granted, of which 1,750,000 vested immediately, 260,000 will vest one-fifth on each annual anniversary of the grant date, and 3,000 will vest one-third on each annual anniversary of the grant date resulting in $75,134 of stock options compensation. Stock options compensation of $6,352 recorded in the year 2018 was related to options that were granted in prior years.  Additionally, 3,000 employee stock options expired that were related to options granted in prior years.  At December 31, 2018 there was $15,368 of unrecognized stock options compensation that is expected to be recognized as an expense over a weighted-average period of 4.7 years.

During the year 2017, 1,626,000 employee stock options were granted, of which 1,476,000 will vest one-third on each annual anniversary of the grant date resulting in $5,167 of stock options compensation.  Stock options compensation of $1,496 recorded in the year 2017 was related to options that were granted in prior years.  Stock options compensation of $5,996 recorded in the year 2017 was related to options on which the vesting requirement was waived for a retiring employee. The Company performed an analysis on the waived vesting under ASC 718-20 “stock compensation” and recorded this incremental expense.  During the year 2017, 20,000 employee stock options were granted and forfeited in the same year.  Additionally, 3,000 employee stock options were forfeited that were related to options granted in prior years.  At December 31, 2017 there was $13,512 of unrecognized stock options compensation that is expected to be recognized as an expense over a weighted-average period of 4.9 years.

Also during the year 2017, no employee stock options were exercised, and 7,100 employee stock options expired.

Common Stock Purchase Warrants – A summary of common stock purchase warrant activity for the years ended December 31, 2018 and 2017 follows:

Outstanding common stock purchase warrants issued to non-employees outstanding at December 31, 2018 are as follows:

 

Number of shares	Exercise price	Expiration year
250,000	$ 0.003	2023

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

	2018	Weighted Average Exercise Price	2017	Weighted Average Exercise Price
Warrants outstanding, beginning of year	250,000	$ 0.003	250,000	$ 0.003
Warrants expired during the year	-	-	-	-
Warrants outstanding, end of year	250,000	$ 0.003	250,000	$ 0.003

The 250,000 warrants outstanding at December 31, 2018 were issued as equity compensation for consulting services.

No warrants were granted during the years ended December 31, 2018 and 2017.