11.

Stock Award Programs

The Company’s stock incentive plan is administered by the Compensation Committee and authorizes the grant or award of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options. Any shares associated with options forfeited are added back to the number of shares that underlie stock options to be granted under the stock incentive plan. The Company has issued restricted stock awards and non-qualified stock option awards as described below.

Valuation of Stock Awards

The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using a Black-Scholes option pricing model (“Black-Scholes model”), which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on analyses of historical employee termination rates and option exercises.

Restricted Stock Awards

During the nine month period ended September 30, 2017, the Company granted 300,000 RSAs to its former Chief Executive Officer that had a grant date fair value of approximately $246,000. The vesting of these RSAs were tied to attainment of certain financial goals as outlined by the Company’s Compensation Committee of the Board of Directors. In connection with his resignation on June 30, 2017, 150,000 shares immediately vested and the remaining 150,000 were cancelled. As a result of share withholdings to satisfy tax liabilities, the Company issued 102,525 shares of the Company’s common stock to Mr. Nyweide and recognized a non-cash stock based compensation expense of approximately $94,400 in conjunction with this acceleration event. The Company's payment of the tax liability associated with this accelerated vesting was recorded as a cash flow from financing activity on the condensed consolidated statements of cash flows.

In addition, during the nine month period ended September 30, 2017, 125,000 RSAs vested upon expiration of the employment agreement between Steve L. Komar (the former Chief Executive Officer) and the Company on January 3, 2017. On January 3, 2017, the Company issued 84,188 shares of the Company’s common stock. Mr. Komar received less than 125,000 shares vested because he elected to have 40,812 of such shares withheld in satisfaction of the corresponding tax liability of approximately $46,000. The Company's payment of this tax liability was recorded as a cash flow from financing activity on the condensed consolidated statements of cash flows.

There were no RSAs granted during the nine month period ended September 30, 2016.

During the nine month period ended September 30, 2016, 250,000 RSAs vested upon the Company reporting over $70 million in revenues in its Annual Report on Form 10-K for 2015. On March 15, 2016, the Company issued 209,438 shares of the Company’s common stock in connection with this accelerated vesting event, of which Mr. Komar received 125,000 shares and James T. McCubbin received 84,438 shares. Mr. McCubbin received less than 125,000 shares because he elected to have 40,562 of such shares withheld in satisfaction of the corresponding tax liability of approximately $32,300. The Company's payment of this tax liability was recorded as a cash flow from financing activity on the condensed consolidated statements of cash flows.

There were no RSAs that were cancelled or expired during the three and nine month periods ended September 30, 2016.

A summary of RSA activity as of September 30, 2017 and 2016, and changes during nine month periods ended September 30, 2017 and 2016 are set forth below:

	2017		2016
NON-VESTED AWARDS	(Unaudited)

Non-vested awards outstanding, January 1,		250,000		500,000
Granted (+)		300,000		-
Cancelled (-)		150,000		-
Vested (-)		275,000		250,000
Non-vested awards outstanding, September 30,		125,000		250,000

Weighted-average remaining contractual life (in years)		0.2		1.5

Unamortized RSA compensation expense	$	1,090	$	61,700

Aggregate intrinsic value of RSAs non-vested, September 30	$	81,250	$	147,500

Aggregate intrinsic value of RSAs vested during the quarter	$	177,750	$	185,000

Non-Qualified Stock Option Awards

During the three and nine month periods ended September 30, 2017 and 2016, employee and non-employee NQSO grants were valued based on the assumptions as set forth in the table below:

Employee Stock Option Grants

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2017		2016		2017		2016
	(Unaudited)
Stock options granted		2,590,000		--		3,440,000		650,000
Expected dividend yield		0%		--		0%		0%
Expected volatility		69.6%		--		68.2%-74.2%		66%-72%
Risk-free interest rate		2.0%		--		1.8% - 2.1%		0.9%-1.5%
Forfeiture rate		4.2%		--		4.6% - 6.8%		--
Expected life		5 years		--		5 years		3-5 years

Director Stock Option Grants

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2017		2016		2017		2016
	(Unaudited)
Stock options granted		100,000		--		250,000		--
Expected dividend yield		0%		--		0%		--
Expected volatility		70.1%		--		69.6% - 70.1%		--
Risk-free interest rate		2.0%		--		1.7% - 2.0%		--
Forfeiture rate		5.9%		--		4.2% - 5.9%		--
Expected life		7 years		--		7 years		--

A summary of stock option activity as of September 30, 2017 and 2016, and changes during nine month periods ended September 30, 2017 and 2016 are set forth below:

	2017				2016
			Weighted				Weighted
			Average				Average
			Grant Date				Grant Date
NON-VESTED AWARDS	Shares		Fair Value		Shares		Fair Value

	(Unaudited)
Non-vested balances, January 1,		920,000	$	0.59		841,672	$	0.80
Granted (+)		3,440,000	$	0.30		650,000	$	0.40
Cancelled (-)		860,000	$	0.68		25,000	$	0.72
Vested (-)		110,000	$	0.69		534,172	$	0.69
Non-vested balances, September 30,		3,390,000	$	0.27		932,500	$	0.59

	2017				2016
			Weighted				Weighted
			Average				Average
OUTSTANDING AND EXERCISABLE AWARDS	Shares		Exercise Price		Shares		Exercise Price
	(Unaudited)
Awards outstanding, January 1,		2,090,668	$	0.86		1,857,668	$	0.91
Granted (+)		3,440,000	$	0.59		650,000	$	0.70
Cancelled (-)		1,402,334	$	0.97		392,000	$	0.62
Exercised (-)		30,000	$	0.57		-		-
Awards outstanding, September 30,		4,098,334	$	0.60		2,115,668	$	0.87

Awards vested and expected to vest,
September 30,		3,614,538	$	0.59		1,989,739	$	0.88

Awards outstanding and exercisable,
September 30,		708,334	$	0.73		1,183,168	$	0.82

During the nine month period ended September 30, 2017, the Company awarded 3,440,000 stock options, of which: i) 2,590,000 stock options were awarded as part of an additional compensation plan to align certain key employees with the Company's long term financial goals, ii) 600,000 stock options were awarded to the Company's former CEO and iii) 250,000 stock options were awarded to the members of the Company's board of directors.

During the nine month period ended September 30, 2017, there were stock options of 1,402,334 that were cancelled, of which 993,334 were cancelled due to termination of employment, 225,000 were cancelled by the board of directors as part of a compensation plan change, and the remainder expired unexercised at the end of the option term. During the nine month period ended September 30, 2016, there were stock options of 392,000 that were cancelled, of which 205,000 were cancelled due to termination of employment and the remainder expired unexercised at the end of the option term.

The weighted-average remaining contractual life of the non-qualified stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2017 were 3.5 years, 3.5 years and 2.3 years, respectively.

There was no intrinsic value associated with options outstanding, exercisable and expected to vest as of September 30, 2017 as the stock price was below the lowest option exercise price. Aggregate intrinsic value represents total pretax intrinsic value (the difference between WidePoint’s closing stock price on September 30, 2017 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2017. The intrinsic value will change based on the fair market value of WidePoint’s stock.

The total intrinsic value of stock options exercised during the nine months ended September 30, 2017 was approximately $9,000.

Share-Based Compensation Expense

Share-based compensation (including restricted stock awards) represents both stock options based expense and stock grant expense. The following table sets forth the composition of stock compensation expense included in general and administrative expense for the periods then ended:

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				JUNE 30,
	2017		2016		2017		2016

	(Unaudited)
Restricted stock compensation expense	$	5,447	$	21,786	$	156,768	$	65,358
Non-qualified stock compensation expense		(86,490)		46,302		(18,732)		139,056

Total share-based compensation before taxes	$	(81,043)	$	68,088	$	138,036	$	204,414

During the three and nine month periods ended September 30, 2017, the board of directors cancelled 225,000 stock awards previously awarded to employees and recognized a benefit related to cancellation of stock awards. At September 30, 2017, the Company had approximately $661,900 of total unamortized share-based compensation expense, net of estimated forfeitures, related to stock option plans that will be recognized over the weighted average remaining period of 1.43 years.