Note

- Stock-Based Compensation; Changes in Equity

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic

718

which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their grant-date fair values.

The Company has applied the Black-Scholes model to value stock-based awards and issued warrants related to notes payable. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of our common stock. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is estimated to be

0%,

as the Company did

not

issue dividends during

2019.

The expected volatility is based on historical volatility of the Company’s common stock.

The Company’s net loss for the

three

months ended

March 31, 2020

and

2019

includes approximately

none

and

$29,000,

respectively, of compensation costs related to share based payments. As of

March 31, 2020,

there was

unrecognized compensation expense related to non-vested stock option grants and stock grants.

April 10, 2009,

the Board of Directors approved for adoption, and on

June 5, 2009,

the shareholders of the Corporation approved, a

2009

Stock Incentive Plan (

“2009

Plan”). The

2009

Plan authorized the issuance of up to

510,000

shares of stock or options to purchase stock of the Company (including cancelled shares reissued under the plan.) On

June 8, 2018,

our shareholders approved the

2018

Stock Incentive Plan (

“2018

Plan”). The

2018

Plan authorized the issuance of up to

300,000

shares of our common stock in the form of equity-based awards. Because

registration on Form S-

was filed for these additional shares within

months of approval by our shareholders, those additional shares are

not

available for issuance in the normal course. As of

March 31, 2020,

options for

20,000

shares remain outstanding.

A summary of the Company’s stock option activity, which includes grants of non-qualified stock options, incentive stock options, warrants and related information, is as follows:

	Shares under Option		Weighted Average Exercise Price
Balance at December 31, 2019		471,144	$	3.95
Granted		612,660		1.00
Cancelled/Expired		432,519		-
Exercised/Issued		15,000		5.48
Outstanding at March 31, 2020		636,285	$	1.10

Exercisable at March 31, 2020		19,625	$	5.48

The instruments above have

aggregate intrinsic value (the difference between the closing price of the Company’s common stock on the last trading day of the quarter ended

March 31, 2020

and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the holders exercised their options on

March 31, 2020.