NOTE H– STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes the changes in warrants outstanding. These warrants were granted in lieu of cash compensation for services performed or financing expenses in connection with the sales of the Company’s common stock.

Transactions involving warrants (see Note G) are summarized as follows:

	Number of Shares			Weighted Average Exercise Price Per Share
Balance at October 1, 2016		7,208,060		$	3.64
Granted		2,340,909			3.47
Exercised		(-	)		(-	)
Cancelled or expired		(8,514	)		(2.64	)
Balance, September 30, 2017		9,540,455		$	3.60

Stock Options

In 2005, the Board of Directors and the holders of a majority of the outstanding shares of common stock approved the Incentive Plan. In 2007, 2008, 2012 and 2015, the Board of Directors and holders of a majority of the outstanding shares of common stock approved various increases in the number of shares of common stock that can be issued as stock awards and stock options thereunder to an aggregate of 8,333,333 shares and the number of shares of common stock that can be covered by awards made to any participant in any calendar year to 833,334 shares. The Incentive Plan’s expiration date is January 25, 2025.

The Incentive Plan is designed to retain directors, executives, and selected employees and consultants by rewarding them for making contributions to our success with an award of options to purchase shares of common stock. As of September 30, 2017, a total of 275,752 shares have been issued and options to purchase 5,855,795 shares have been granted under the Incentive Plan.

Transactions involving stock options issued are summarized as follows:

	Number of Shares			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted Average Contractual Life (years)
Outstanding at October 1, 2016		4,403,234		$	4.08
Granted		1,099,844			2.28
Exercised		-			-
Cancelled or expired		(169,851	)		4.17
Outstanding at September 30, 2017		5,333,227		$	3.71
Vested at September 30, 2017		3,884,600			3.91	$	0		4.09
Non-vested at September 30, 2017		1,448,627				$	14,646		7.38

The aggregate intrinsic value for options exercised during the fiscal years ended September 30, 2017 and 2016 was zero and $50,110.

For the fiscal year ended September 30, 2017, the Company issued 1,099,844 (including award modifications of 119,182 options) options to employees, consultants, members of the strategic advisory board and non-employee board of director members. Included in these grants was 280,000 options granted to executives and 5,000 performance based options issued to a consultant. These performance based options vest when a certain performance condition is met by the consultant.

For the fiscal year ended September 30, 2016, the Company issued an aggregate of 1,115,941 options to employees, non-employee board of director members, members of the strategic advisory board and consultants. Included in these grants was 160,000 options granted to executives and 500,000 performance based options granted to an employee during May 2016. The performance based options vest in tranches as certain performance conditions are met by the employee. None of these performance based options were vested as of September 30, 2017.

The fair value of options granted during the fiscal years ended September 30, 2017 and 2016 was determined using the Black Scholes Option Pricing Model. For the purposes of the valuation model, the Company used the simplified method for determining the granted options expected lives. The simplified method is used since the Company does not have adequate historical data to utilize in calculating the expected term of options. The fair value for options granted was calculated using the following weighted average assumptions:

	2017			2016
Stock price	$	2.11		$	3.05
Exercise price	$	2.31		$	2.93
Expected term		5.38			7.89
Dividend yield		-			-
Volatility		111	%		135	%
Risk free rate		2.0	%		1.8	%

The Company recorded $3,257,305 and $2,038,830 as stock compensation expense within selling, general and administrative for fiscal years ended September 30, 2017 and 2016, respectively. Included in this amount is $89,951 and $37,342 for the fiscal years ended September 30, 2017 and 2016, respectively for employee stock option modifications. These modifications extended the term of the option for an employee and nonemployee board of director members in fiscal 2017 and extended the terms of the options for a former employee in fiscal 2016. As of September 30, 2017, unrecorded compensation cost related to non-vested awards was $2,036,222, which is expected to be recognized over a weighted average period of approximately 3.67 years. The weighted average grant date fair value per share for options granted during the fiscal years ended September 30, 2017 and 2016 was $1.58 and $2.84, respectively.