Quarterly report pursuant to Section 13 or 15(d)

H. STOCK OPTIONS AND WARRANTS

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H. STOCK OPTIONS AND WARRANTS
9 Months Ended
Sep. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK OPTIONS AND WARRANTS

Employee Stock Options

 

The Company maintains an equity incentive plan, (the “Plan”). The Plan was established in 2010 as an incentive plan for officers, employees, non-employee directors, prospective employees and other key persons. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a better alignment of their interests with those of the Company and its stockholders.

 

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under the Plan as of September 30, 2017.

 

Options Outstanding   Options Exercisable  
Exercise Prices   Number
Outstanding
    Weighted Average
Remaining
Contractual Life
(Years)
    Weighted Average
Exercise Price
    Number
Exercisable
    Weighted Average
Exercise Price
 
$ 0.01 - $0.15       3,075,000       6.19     $ 0.14       3,075,000     $ 0.14  
$ 0.16 - $0.99       2,476,800       3.44       0.18       2,246,800       0.18  
          5,551,800       4.97     $ 0.16       5,321,800     $ 0.16  

 

Transactions involving stock options issued to employees are summarized as follows:

 

    Number of
Shares
    Weighted Average
Price Per Share
 
Outstanding at January 1, 2016     1,825,225     $ 0.28  
Granted     1,300,000       0.17  
Exercised            
Cancelled or expired     (292,500 )     0.69  
Outstanding at December 31, 2016     2,832,725     $ 0.18  
Granted     3,000,000       0.14  
Exercised            
Cancelled or expired     (280,925 )     0.17  
Outstanding at September 30, 2017     5,551,800     $ 0.16  

  

The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules, exercise patterns and pre-vesting and post-vesting forfeitures. The Company estimates the volatility of the Company’s common stock based on the calculated historical volatility of the Company’s own common stock using the trailing 24 months of share price data prior to the date of the award. The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on the Company’s common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model. The Company uses historical data to estimate pre-vesting option forfeitures and record share-based compensation for those awards that are expected to vest. In accordance with ASC 718-10, the Company adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience.

 

There were 3,000,000 and zero options granted and zero options exercised during the nine months ended September 30, 2017 and 2016, respectively. Total stock-based compensation expense in connection with options granted to employees recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 was $2,343 and $2,703, respectively, and $320,545 and $10,204, respectively.

 

Warrants

 

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company.

 

      Warrants Outstanding           Warrants Exercisable  
Exercise Prices    

Number

Outstanding

   

Weighted Average

Remaining

Contractual Life

(Years)

   

Weighted Average

Exercise Price

   

Number

Exercisable

   

Weighted Average

Exercise Price

 
$ 0.18       50,000       0.16     $ 0.18       50,000     $ 0.18  
  0.20       250,000       4.02       0.20       250,000       0.20  
          300,000       3.38     $ 0.20       300,000     $ 0.20  

 

Transactions involving warrants are summarized as follows:

 

    Number of
Shares
    Weighted Average
Price Per Share
 
Outstanding at January 1, 2016     5,638,410     $ 0.20  
Issued            
Exercised     (5,211,542 )     0.13  
Cancelled or expired     (126,868 )     3.00  
Outstanding at December 31, 2016     300,000       0.20  
Issued            
Exercised            
Cancelled or expired            
Outstanding at September 30, 2017     300,000     $ 0.20  

 

There were no warrants granted, exercised, cancelled or forfeited during the nine months ended September 30, 2017 and no warrants granted, 5,211,542 warrants exercised and 126,868 cancelled or forfeited during the nine months ended September 30, 2016, respectively.