NOTE F – Stock Options and Warrants

The Company currently has two non-statutory stock option plans, the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”) and the 2013 Equity Compensation Plan (the “2013 Plan”). Both plans have been adopted by our Board of Directors and approved by our shareholders. Both the 2001 Plan and the 2013 Plan have options available for future issuance. Any common shares issued as a result of the exercise of stock options would be new common shares issued from our authorized issued shares.

During the three months ended June 30, 2017, the Company issued options to purchase 20,000 shares of stock to each of its two non-employee board members as an annual stock option grant (for a total of 40,000 options) under the 2001 Plan. During the three months ended June 30, 2016, the Company issued options to purchase 20,000 shares of common stock to each of its four non-employee board members as an annual stock option grant (for a total of 80,000 options) under the 2001 Plan.

Stock option activity for the six months ended June 30, 2017 and June 30, 2016 is summarized as follows (the figures contained within the tables below have been rounded to the nearest thousand):

	Six months ended June 30, 2017						Six months ended June 30, 2016
					Aggregate						Aggregate Intrinsic Value as of
					Intrinsic Value as of June 30,				Weighted Average Exercise		June 30,
	Shares		Weighted Average Exercise Price		2017		Shares		Price		2016
Options outstanding at beginning of period		2,107,000	$	0.13				1,435,000	$	0.14
Granted		40,000	$	0.13				830,000	$	0.11
Exercised		0		NA				0		NA
Cancelled/expired		0		NA				(78,000)	$	0.18
Options outstanding at end of period		2,147,000	$	0.13	$	15,000		2,187,000	$	0.13	$	16,000
Options exercisable at end of period		1,647,000	$	0.13				1,189,000	$	0.14

The following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued during the six months ended June 30, 2017 and June 30, 2016:

	Six months ended
	2017	2016
Volatility	81%	62% - 66%
Expected term (years)	10 years	10 years
Risk-free interest rate	2.16%	1.57% - 1.94%
Dividend yield	0%	0%

The Company recognized $23,000 in share based payment expense in the six months ended June 30, 2017 and $36,000 in share based payment expense in the six months ended June 30, 2016. The Company recognized $11,000 in share based payment expense in the three months ended June 30, 2017 and $17,000 in share based payment expense in the three months ended June 30, 2016. As of June 30, 2017, there was approximately $26,000 of total unrecognized compensation cost related to non-vested stock options, which vest over time. The cost is expected to be recognized over a period ranging from 6-11 months.

Warrants

Warrant activity for the six months ended June 30, 2017 and June 30, 2016 is summarized as follows:

	Six months ended June 30, 2017					Six months ended June 30, 2016
					Aggregate
					Intrinsic Value as of June 30,					Aggregate Intrinsic Value as of
	Shares		Weighted Average Exercise Price		2017	Shares		Weighted Average Exercise Price		June 30, 2016
Warrants outstanding at beginning of period		2,060,000	$	0.18			2,385,000	$	0.17
Granted		0		NA			0		NA
Exercised		0		NA			0		NA
Cancelled/expired		0		NA			0		NA
Warrants outstanding at end of period		2,060,000	$	0.18	None		2,385,000	$	0.17	$	0
Warrants exercisable at end of period		2,060,000	$	0.18			2,385,000	$	0.17

In the six months ended June 30, 2017 and June 30, 2016, the Company recognized $0 in debt issuance and deferred finance costs related to the issuance of the above warrants outstanding. In the three months ended June 30, 2017 and June 30, 2016, the Company recognized $0 in debt issuance and deferred finance costs related to the issuance of the above warrants. As of June 30, 2017, there was $0 of total unrecognized expense.