Note

– Stock-B

ased Compensation

Plan Information

The

2015

Incentive Stock Plan (the “Plan”) provides for awards of stock options and restricted stock to officers, directors, key employees and consultants. Under the Plan, option prices will be set by the Compensation Committee and

may

not

be less than the fair market value of the stock on the grant date.

September 30, 2019,

1,100,415

shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares,

7,154

shares were available for future grants.

Stock Options

All share-based payments to employees, including grants of employee stock options, are recognized in the consolidated financial statements based on their grant date fair value over the requisite service period. Compensation expense for stock-based awards is included in the operating, selling, general and administrative expense section of the Consolidated Statements of Operations.

Stock options are valued at the date of the award, which does

not

precede the approval date, and compensation cost is recognized on a straight-line basis over the vesting period. Stock options granted to employees generally become exercisable over a three,

four

five

-year period from the date of grant and generally expire

ten

years after the date of grant. Stock options granted to the Board of Directors generally become exercisable on the date of grant and generally expire

ten

years after the date of grant.

A summary of the status of the Company's stock options at

September 30, 2019

and changes during the year then ended is presented below:

	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at September 30, 2018		290,000	$	2.40
Granted		480,000	$	1.32
Exercised		−	$	–
Expired		−	$	–
Forfeited		‒	$	‒
Outstanding at September 30, 2019		770,000	$	1.73	$352,700
Exercisable at September 30, 2019		443,334	$	1.99	$146,400

There were

options exercised under the Plan for the years ended

September 30, 2019,

2018

and

2017.

Information about the Company’s outstanding and exercisable stock options at

September 30, 2019

is as follows:

Exercise Price	Stock Options Outstanding		Exercisable Stock Options Outstanding		Remaining Contractual Life (Years)	Aggregate Intrinsic Value (a)

$1.31		150,000		‒	9.5	$103,500
$1.28		130,000		‒	9.3	93,600
$1.36		200,000		200,000	9.0	128,000
$1.79		50,000		33,334	7.6	10,500
$1.81		90,000		60,000	7.4	17,100
$3.21		100,000		100,000	4.5	‒
$2.45		50,000		50,000	2.5	‒
		770,000		443,334		$352,700

(a) For stock options outstanding

The Company granted nonqualified stock options of

480,000,

zero

shares and

140,000

shares for the years ended

September 30, 2019,

2018

and

2017,

respectively. The Company estimated the fair value of the options granted using the Black-Scholes option valuation model and the assumptions shown in the table below. The Company estimated the expected term of options granted based on the historical grants and exercises of the Company's options. The Company estimated the volatility of its common stock at the date of the grant based on both the historical volatility as well as the implied volatility on its common stock. The Company based the risk-free rate that was used in the Black-Scholes option valuation model on the implied yield in effect at the time of the option grant on U.S. Treasury

zero

-coupon issues with equivalent expected terms. The Company has never paid cash dividends on its common stock and does

not

anticipate paying any cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of

zero

in the Black-Scholes option valuation model. The Company amortizes the resulting fair value of the options ratably over the vesting period of the awards. The Company used historical data to estimate the pre-vesting options forfeitures and records share-based expense only for those awards that are expected to vest.

The estimated fair value at date of grant for stock options utilizing the Black-Scholes option valuation model and the assumptions that were used in the Black-Scholes option valuation model for the fiscal years

2019

and

2017

stock option grants are as follows:

	2019	2017
Estimated fair value of options at grant date	$196,970	$96,690
Black-Scholes model assumptions:
Average expected life (years)	6	6
Average expected volatile factor	29%	35%
Average risk-free interest rate	2.8%	2.4%
Average expected dividend yield	–	–

Compensation expense related to stock options recorded for the years ended

September 30, 2019,

2018

and

2017

is as follows:

	2019		2018		2017
Fiscal year 2012 grant	$	‒	$	‒	$	5,359
Fiscal year 2014 grant		‒		‒		13,575
Fiscal year 2016 grant		‒		1,789		16,221
Fiscal year 2017 grant		18,377		42,135		31,088
Fiscal year 2019 grant		128,415		‒		‒

Total compensation expense	$	146,792	$	43,924	$	66,243

The Company records compensation expense over the vesting term of the related options. At

September 30, 2019,

compensation costs related to these unvested stock options

not

yet recognized in the statements of operations was

$73,643

which will be fully amortized by

2022.

Restricted stock

The Company granted restricted stock in

October 2018

to its Chairman of the Board of Directors totaling

55,147

shares, which were valued at market value on the date of grant. The shares will vest

20%

per year with the

first

installment vesting on the

first

anniversary of the grant date. The fair value of the shares upon issuance totaled

$75,000.

The unamortized portion of the restricted stock is included in prepaid expenses on the Company’s consolidated balance sheets. The Company granted restricted stock in

March 2018

and

March 2017

to its Board of Directors and a Company officer totaling

80,150

shares and

58,009

shares, respectively. The restricted stock grants were valued at market value on the date of grant. The restricted shares were delivered to the directors and employees at the end of the

month holding period. The fair value of the shares upon issuance totaled

$105,000

for each of the

2018

and

2017

fiscal year grants. The grants are amortized over the

month holding period as compensation expense.

Compensation expense related to restricted stock recorded for the years ended

September 30, 2019,

2018

and

2017

is as follows:

	2019		2018		2017
Fiscal year 2014 grants	$	–	$	–	$	4,222
Fiscal year 2016 grants		–		–		43,750
Fiscal year 2017 grant		‒		43,750		61,250
Fiscal year 2018 grant		37,500		67,500		–
Fiscal year 2019 grant		15,000		–		–

Total compensation expense	$	52,500	$	111,250	$	109,222