Note

– Stock-Based 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.

March 2020,

at the Company’s annual meeting of shareholders, the shareholders authorized an additional

1,000,000

shares of common stock be added to the Plan. At

March 31, 2020,

2,100,415

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

894,053

shares were available for future grants.

Stock Options

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

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

March 31, 2020

and changes during the

six

months then ended is presented below:

	Shares			Wtd. Avg. Ex. Price		Aggregate Intrinsic Value
Outstanding at September 30, 2019		770,000		$	1.73	$	352,700
Granted		‒			‒		‒
Exercised		(110,000	)	$	1.57	$	282,833
Expired		–			–		–
Forfeited		(116,667	)	$	1.31	$	130,667
Outstanding at March 31, 2020		543,333		$	1.85	$	394,266

Exercisable at March 31, 2020		410,001		$	1.98	$	265,334

nonqualified stock options were granted for the

six

months ended

March 31, 2020.

The Company estimates the fair value of the options granted using the Black-Scholes option valuation model. The Company estimates the expected term of options granted based on the historical grants and exercises of the Company’s options. The Company estimates 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 bases the risk-free rate that is 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 term. The Company has never paid cash dividends on its common stock and does

not

anticipate paying 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 amortizes the resulting fair value of the options ratably over the vesting period of the awards. The Company recognizes forfeitures as they occur.

Compensation expense related to unvested stock options recorded for the

six

months ended

March 31, 2020

is as follows:

	Six Months Ended March 31, 2020
Fiscal year 2017 grant	$	4,784
Fiscal year 2019 grants	$	2,744

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

March 31, 2020,

compensation costs related to these unvested stock options

not

yet recognized in the consolidated condensed statements of operations was

$16,066.

Restricted Stock

As a result of the shareholders authorizing the additional shares being added to the Plan in

March 2020,

the Company granted restricted stock awards to its eligible board members for both the prior fiscal year and current fiscal year awards due to eligible board members. The shares granted totaled

229,768,

which were valued at market value on the date of grant. The shares have varying vesting periods ranging from immediate to

three

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

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