Note 7. Stock Plans and Stock Based Compensation

In August 2019, the Board adopted the Andrea Electronics Corporation 2019 Equity Compensation Plan (“2019 Plan”), which was subsequently approved by the shareholders on October 24, 2019. The 2019 Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 10,000,000 shares of Andrea’s common stock to be acquired by the holders of those awards. Awards can be granted to key employees, officers, directors and consultants. No awards have been granted under the 2019 Plan.

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, as amended, authorized the granting of awards, the exercise of which would allow up to an aggregate of 18,000,000 shares of Andrea’s Common Stock to be acquired by the holders of those awards. Awards could be granted to key employees, officers, directors and consultants. As the 2006 Plan has expired, no further awards will be granted under the 2006 Plan.

The stock option awards granted under the 2006 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 are 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.

Option activity during the nine months ended September 30, 2019 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, 2019	10,008,001	$	0.08	$	0.08	4.81 years	8,847,351	$	0.08	$	0.08	4.41 years
Expired	1,907,501	$	0.11	$	0.11
At September 30, 2019	8,100,500	$	0.07	$	0.07	5.05 years	6,939,850	$	0.08	$	0.08	4.70 years

During the three and nine months ended September 30, 2019, no options vested, nor were any options exercised or forfeited. Based on the September 30, 2019 fair market value of the Company’s common stock of $0.04 per share, there is no aggregate intrinsic value for the 8,100,500 options outstanding and 6,939,850 options exercisable.

Total compensation expense recognized related to stock option awards was $4,836 and $12,779 for the three months ended September 30, 2019 and 2018, respectively. In the accompanying unaudited condensed consolidated statement of operations for the three months ended September 30, 2019, $4,269 of compensation expense is included in general, administrative and selling expenses and $567 of compensation expense is included in research and development expenses. In the accompanying unaudited condensed consolidated statement of operations for the three months ended September 30, 2018, $10,931 of compensation expense is included in general, administrative and selling expenses and $1,848 of compensation expense is included in research and development expenses.

Total compensation expense recognized related to stock option awards was $14,508 and $39,449 for the nine months ended September 30, 2019 and 2018, respectively. In the accompanying unaudited condensed consolidated statement of operations for the nine months ended September 30, 2019, $12,807 of compensation expense is included in general, administrative and selling expenses and $1,701 of compensation expense is included in research and development expenses. In the accompanying unaudited condensed consolidated statement of operations for the nine months ended September 30, 2018, $33,905 of compensation expense is included in general, administrative and selling expenses and $5,544 of compensation expense is included in research and development expenses.

As of September 30, 2019, there was $3,202 of total unrecognized compensation costs related to unvested share-based compensation arrangements granted under the 2006 Plan which is expected to be recognized in 2019.