Note 7. Stock Plans and Stock Based Compensation

In October 2006, the Board adopted the Andrea Electronics Corporation 2006 Equity Compensation Plan (“2006 Plan”), which was subsequently approved by the shareholders. The 2006 Plan expired on November 16, 2016 and no further awards will be granted under the 2006 Plan.

Awards previously granted under the 2006 Plan prior to the expiration of the 2006 Plan remain subject to the terms of such 2006 Plan. The stock option awards granted under this plan have been granted with an exercise price equal to the market price of the Company’s stock at the date of grant; with vesting periods of up to four years and 10-year contractual terms. The fair values of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model that uses the weighted-average assumptions noted in the following table. Expected volatilities are based on implied volatilities from historical volatility of the Company’s stock. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

As the 2006 Plan expired November 16, 2016, there were no options granted during the three or nine months ended September 30, 2017. There were also no options granted during the three or nine months ended September 30, 2016.

Option activity during the nine months ended September 30, 2017 is summarized as follows:

	Options Outstanding							Options Exercisable
	Options Outstanding		Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Life	Options Exercisable	Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Life
At January 1, 2017	17,369,820		$	0.07	$	0.07	4.59 years	12,672,230	$	0.08	$	0.08	2.79 years
Forfeited	(3,840	)	$	0.08	$	0.08
Canceled	(2,202,979	)	$	0.11	$	0.09
At September 30, 2017	15,163,001		$	0.07	$	0.07	4.40 years	10,836,051	$	0.08	$	0.07	2.64 years

Based on the September 30, 2017, fair market value of the Company’s common stock of $0.08 per share, the aggregate intrinsic value for the 15,163,001 options outstanding and 10,836,051 shares exercisable is $313,400 and $202,060, respectively.

Total compensation expense recognized related to stock option awards was $33,207 and $14,884 for the three months ended September 30, 2017 and 2016, respectively. In the accompanying condensed consolidated statement of operations for the three months ended September 30, 2017, $28,029 of compensation expense is included in general, administrative and selling expenses and $5,178 of compensation expense is included in research and development expenses. In the accompanying condensed consolidated statement of operations for the three months ended September 30, 2016, $12,067 of compensation expense is included in general, administrative and selling expenses and $2,817 of compensation expense is included in research and development expenses.

Total compensation expense recognized related to stock option awards was $101,364 and $49,372 for the nine months ended September 30, 2017 and 2016, respectively. In the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2017, $86,437 of compensation expense is included in general, administrative and selling expenses and $14,927 of compensation expense is included in research and development expenses. In the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2016, $40,921 of compensation expense is included in general, administrative and selling expenses and $8,451 of compensation expense is included in research and development expenses.

As of September 30, 2017, there was $91,130 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2006 Plan which is expected to be recognized over the weighted-average period of 1.00 year. Specifically, this unrecognized compensation cost is expected to be recognized during 2017, 2018 and 2019 in the amounts of $23,331, $49,453 and $18,346, respectively.