Note 8 - Options

6 Months Ended

Jun. 30, 2017

NOTE 8 - OPTIONS

The Company maintains a stock option plan under which certain employees are awarded option grants based on a combination of performance and tenure. The stock option plan provides for the grant of up to 2,000,000 shares. All options may be exercised for a period up to 10 years following the grant date, after which they expire. Options are vested in 4 or 5 years from the grant date.

For the six-month period ended June 30, 2017, two option grants’ exercise period were extended to 10 years from the grant date. The option expense for the period associated with the extension was $61,151. No options were issued, and 110,500 options were forfeited or expired due to employee resignation. For the options not vested, the option expense reversed was $11,975.

In April 2017, 253,846 options were granted with an exercise price of $0.65 and exercise expiration of 10 years from the grant date. The options vest over a period of one and four years.

In April 2017, two option grants, totaling 250,000 options, were amended to extend the exercise term from 5 years to 10 years from the date of grant. Incremental option expense recognized as a result of the amendment amounted to $6,240.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant and on each modification date using the following assumptions:

Expected dividend yield	0%
Weighted average expected volatility	200%
Weighted-average risk-free interest rate	0.48% - 2.11%
Expected life of options	2 - 10 years

Total compensation cost related to stock options was $164,777 for the six months ended June 30, 2017. As of June 30, 2017, there was $197,054 of unrecognized compensation costs related to stock options, which is expected to be recognized over a weighted average period of 4.0 to 10.0 years. The following table represents stock option activity for the six-month period ended June 30, 2017:

	Number of Options		Average Exercise Price	Contractual Life in Years		Intrinsic Value

Outstanding as of December 31, 2016	1,044,500	$	0.92	3.38	$	-
Exercisable at December 31, 2016	584,000		1.05	3.02		-

Forfeited	35,000		1.02	8.76		-
Granted	253,846		0.65	9.53		-
Expired	75,500		1.13	5.04		-

Outstanding as of June 30, 2017	1,187,846	$	1.10	8.46	$	-
Exercisable at June 30, 2017	698,800		1.02	6.69		-