4. Stock-Based Compensation

9 Months Ended

Sep. 30, 2018

Share-based Compensation [Abstract]

4. Stock-Based Compensation

The Company has two shareholder–approved stock-based compensation plans. The 2006 Stock Incentive Plan was adopted in 2006 (“2006 Plan”) and had options granted under it through April 12, 2016. On June 1, 2016, the shareholders ratified the IAI 2016 Stock Incentive Plan (“2016 Plan”), which had been approved by the Board of Directors on April 4, 2016.

The Company recognizes compensation costs only for those shares expected to vest on a straight-line basis over the requisite service period of the awards. Generally such options vest over periods of nine months to two years. The fair values of option awards granted in the three months and nine months ended September 30, 2018 and 2017, were estimated using the Black-Sholes option pricing model under the following assumptions:

	Three Months Ended	Three Months Ended	Nine Months Ended	Nine Months Ended
	September 30, 2018	September 30, 2017	September 30, 2018	September 30, 2017
Risk-free interest rate	2.75%	1.87%	2.65% - 2.92%	1.87%
Dividend yield	0%	0%	0%	0%
Expected term	5 years	5 years	5 years	5 years
Expected volatility	53.4%	44.6%	49.0%-53.4%	44.6%

2016 Stock Incentive Plan

The 2016 Plan became effective June 1, 2016, and expires April 4, 2026. The 2016 Plan provides for the granting of equity awards to key employees, including officers and directors. The maximum number of shares for which equity awards may be granted under the 2016 Plan is 1,000,000. Options under the 2016 Plan expire no later than ten years from the date of grant or when employment ceases, whichever comes first, and vest over periods determined by the Board of Directors. The minimum exercise price of each option is the quoted market price of the Company’s stock on the date of grant. At September 30, 2018, there were unexpired options for 385,000 shares issued under the 2016 Plan, of which 217,000 were exercisable.

2006 Stock Incentive Plan

The 2006 Plan became effective May 18, 2006, and expired April 12, 2016. The 2006 Plan provides for the granting of equity awards to key employees, including officers and directors. Options under the 2006 Plan were generally granted at-the-money or above, expire no later than ten years from the date of grant or within three months of when employment ceases, whichever comes first, and vest over periods determined by the Board of Directors. The number of shares subject to options available for issuance under the 2006 Plan could not exceed 1,950,000. There were 1,003,500 unexpired options remaining from the 2006 Plan at September 30, 2018, of which 1,003,500 were exercisable.

The status of the options issued under the foregoing option plans as of September 30, 2018, and changes during the nine months ended September 30, 2018, were as follows:

	Options outstanding
				Weighted average		Weighted average
				exercise price		remaining
Incentive Options	Shares			per share		contractual term
Outstanding at January 1, 2018		1,288,000		$	0.21
Options granted		163,000			0.45
Options exercised		-			-
Options expired		(62,500	)		0.31
Options forfeited		-			-
Outstanding at September 30, 2018		1,388,500		$	0.23	5 years
Exercisable at September 30, 2018		1,220,500		$	0.21	4 years, 6 months

There were 3,000 options granted during the three months ended September 30, 2018, of which none were granted to non-employees, and 163,000 options granted during the nine months ended September 30, 2018, of which 5,000 options were granted to non-employees. There were 217,000 options granted during both the three months and nine months ended September 30, 2017, of which none were granted to non-employees. The weighted-average grant date fair values of options granted during the three months and nine months ended September 30, 2018, were $0.12 and $0.20, respectively, and the weighted-average grant date fair value of options granted during both the three months and nine months ended September 30, 2017, was $0.10. There were no options exercised during the nine months ended September 30, 2018 and 2017. As of September 30, 2018, there was $15,981 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the stock incentive plans; that cost is expected to be recognized over a weighted-average period of five months.

Total compensation expense related to these plans was $8,226 and $6,908 for the three months ended September 30, 2018 and 2017, respectively, of which $426 and $0 related to options awarded to non-employees, respectively. Total compensation expense related to these plans was $23,882 and $7,230 for the nine months ended September 30, 2018 and 2017, respectively, of which $644 and $0 related to options awarded to non-employees, respectively. Compensation expense relating to prior periods in the amount of $612 was reversed in the nine months ended September 30, 2017, from options that were forfeited prior to vesting.

Nonvested option awards as of September 30, 2018 and changes during the nine months ended September 30, 2018 were as follows:

	Nonvested
				Weighted average
				grant date
	Shares			fair value
Nonvested at January 1, 2018		232,000		$	0.10
Granted		163,000			0.20
Vested		(227,000	)		0.10
Forfeited		-			-
Nonvested at September 30, 2018		168,000		$	0.20