4. STOCK BASED COMPENSATION

9 Months Ended

Sep. 30, 2017

Notes

4. STOCK BASED COMPENSATION

4.   STOCK BASED COMPENSATION

The following table summarizes the Company’s employee stock option activity for the nine months ended September 30, 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	$.005	6.26
Options exercisable, December 31, 2016	425,934	$.003	5.78	$ 9,350
Options granted during the period	1,623,000	.007
Options forfeited during the period	(23,000)	.007
Options expired during the period	(6,000)	.003
Options outstanding, September 30, 2017	2,108,934	$.006	8.41
Options exercisable, September 30, 2017	576,934	$.003	6.17	$ 21,326

During the nine months ended September 30, 2017, 850,000, 770,000, and 3,000 nonqualified employee stock options were granted with exercise prices of $.01, $.003, and $.02, respectively; 20,000 of these $.003 options were forfeited, and on September 30, 2017, the vesting requirement on 150,000 employee stock options was waived for a retiring employee.  The Company performed an analysis on the waived vesting under ASC 718-20 “stock compensation” and recorded an incremental expense of $5,996.  The remaining 1,453,000 stock options will vest one-third on each annual anniversary date of the grant and will expire ten years from the date of the grant.  The options were valued using Black-Scholes option pricing model on the respective date of issuance and the fair value of the shares was determined to be $19,257 of which $3,697 was recognized as stock-based compensation expense for the nine months ended September 30, 2017.  During the nine months ended September 30, 2017, 3,000 employee stock options were forfeited, and 6,000 employee stock options expired that were related to options granted in prior years.

Total stock-based compensation expense for the three months ended September 30, 2017 was $7,757 of which $7,317 was related to options issued during 2017 and $440 was related to options issued in prior years.  Total stock-based compensation expense for the nine months ended September 30, 2017 was $11,005 of which $9,693 was related to options issued during 2017 and $1,312 was related to options issued in prior years.

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 Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the nine months ended September 30, 2017:

	2017
Risk free interest rate	1.97% - 2.08 %
Expected lives (in years)	5
Expected volatility	173% - 267 %
Dividend yield	0 %