NOTE 7 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS

Common Stock

At December 31, 2016, 396,090 shares of the Company’s authorized common stock were reserved for issuance upon exercise of outstanding options under its stock option plan.

Preferred Stock

The Company’s Articles of Incorporation provide that the Board of Directors has the authority, without further action by the holders of the outstanding common stock, to issue up to five million shares of preferred stock from time to time in one or more series. The Board of Directors shall fix the consideration to be paid, but not less than par value thereof, and to fix the terms of any such series, including dividend rights, dividend rates, conversion or exchange rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price and the liquidation preference of such series. As of December 31, 2016, the Company does not have any preferred stock outstanding.

Stock Options and Stock Appreciation Rights

At December 31, 2016, the Company has two stock option plans: the 1998 Long-Term Incentive Plan (“1998 Plan”) and the 2009 Long-Term Incentive Plan (“2009 Plan”).

The 1998 Plan authorizes the grant of incentive stock options, non-qualified stock options, stock appreciation rights (SARs), restricted stock, bonus stock, and performance shares to employees, consultants, and non-employee directors of the Company. The exercise price of each option shall not be less than the fair market value of the common stock at the date of grant. The total number of the Company’s shares that may be awarded under this plan is 1,509,000 shares of common stock. No stock options may be granted under this Plan after May 11, 2009. At December 31, 2016, there were options outstanding for 39,000 shares of common stock under this plan.

Options expire on the date determined, but not more than ten years from the date of grant. All of the options granted may be exercised after three years in installments upon the Company attaining certain specified gross revenue and pre-tax margin objectives, unless such objectives are modified in the sole discretion by the Board of Directors. No modifications to these criteria have been made.

Notwithstanding that the objectives may not be met in whole or in part, these options will vest in full on a date that is two years prior to the expiration date of the option or, in the event of a change in control (as defined), will vest in full at time of such change in control.

The 2009 Plan authorizes the grant of incentive stock options, non-qualified stock options, SARs, restricted stock, bonus stock, and performance shares to employees, consultants, and non-employee directors of the Company. The exercise price of each option shall not be less than the fair market value of the common stock at the date of grant. The total number of the Company’s shares that may be awarded under this plan is 1,300,000 shares of common stock. At December 31, 2016, there were options outstanding for 357,090 shares of common stock under this plan.

Options expire on the date determined, but not more than ten years from the date of grant. All of the options granted under the 2009 Plan may be exercised after four years in installments upon the attainment of specified length of service. In the event of a change in control (as defined), the options will vest in full at the time of such change in control.

There have been no transactions with respect to the Company’s stock appreciation rights during the years ended December 31, 2016 and 2015, nor are there any stock appreciation rights outstanding at December 31, 2016 and 2015.

Transactions with respect to the Company’s stock option plan for the years ended December 31, 2016 and 2015 are as follows:

	Number of Shares			Weighted Average Exercise Price

Outstanding at January 1, 2015		628,550		$	1.9222
Exercised		(341,250	)		0.8630
Forfeited		(1,950	)		2.3154
Granted		52,000			2.0385

Outstanding at December 31, 2015		337,350		$	3.0092
Exercised		(260	)		2.3154
Forfeited		(55,500	)		2.0946
Granted		114,500			2.9873

Outstanding at December 31, 2016		396,090		$	3.1315

As of December 31, 2016, there were 942,650 shares of common stock reserved for the granting of additional options.

The following table summarizes the stock-based compensation expense for stock options that was recorded in the Company’s results of operations in accordance with ASC 718 for the years ended December 31:

	2016		2015

Data and product costs	$	32,588	$	11,780
Selling, general and administrative costs		107,085		116,059

	$	139,673	$	127,839

The fair value of each option 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 historical volatility of our stock through the date of grant. The Company uses the simplified method under Staff Accounting Bulletin No. 110, “Use of a Simplified Method in Developing an Estimate of Expected Term of ‘Plain Vanilla’ Share Options”, to estimate the options’ expected term. The risk-free interest rate used is based on the U.S. Treasury constant maturities at the time of grant having a term that approximates the expected life of the option.

The fair value of options granted during the years ended December 31, 2016 and 2015 was $2.97 and $2.65, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following assumptions:

	2016			2015
Risk-free interest rate		2.07	%		1.73	%
Expected dividend yield		1.68	%		1.89	%
Expected volatility factor		0.78			1.15
Expected life of the option (years)		8.82			9.00

The Company issues new shares upon the exercise of options.

The following table summarizes information about the Company’s stock options outstanding at December 31, 2016:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price

	$1.00 - $ 2.00		39,000		0.70	$	1.8308		39,000	$	1.8308
	$2.01 - $ 3.00		167,040		7.78	$	2.6865		13,208	$	2.3154
	$3.01 - $ 6.00		190,050		3.61	$	3.7895		118,820	$	3.7895

			396,090		5.08	$	3.1315		171,028	$	3.0854

The aggregate intrinsic value represents the total pre-tax intrinsic value, based on options with an exercise price less than the Company's closing stock price of $3.10 as of December 31, 2016, which would have been received by the option holders had those option holders exercised their options as of that date. The aggregate intrinsic value of options outstanding as of December 31, 2016 and 2015 was $120,966 and $4,202, respectively.

As of December 31, 2016, the total compensation cost related to unvested stock-based awards granted to employees under the Company’s stock option plan but not yet recognized was $416,345. This cost will be amortized on a straight-line basis over a weighted average term of 3.21 years and will be adjusted for subsequent changes in estimated forfeitures.