NOTE 9 – STOCK BASED COMPENSATION

The Company’s Consolidated 2016 Stock Plan (the “Plan”) provides for granting stock options and restricted stock awards to employees, directors and consultants of the Company. A total of 5,833,334 shares have been authorized for issuance under the Plan. At September 30, 2016, the Company had 2,649,475 shares available for future grant. Upon share option exercise or issuance of restricted stock, the Company issues new shares to fulfill these grants. The Company previously maintained a 2014 Stock Incentive Plan and the 2009 Stock Incentive Plan. The 2016 Plan consolidated the 2014 Plan and the 2009 Plan into a new plan.

Common Stock Warrants

For all warrants included within permanent equity, the Company has determined the estimated value of the warrants granted to nonemployees in exchange for services and financing expenses using the Black-Scholes pricing model and the following assumptions: stock price at valuation, $7.85-$7.96; expected term of 2-5 years, exercise price of $7.88-$7.96, a risk free interest rate of 0.38-1.72 percent, a dividend yield of 0 percent and volatility of 98-163 percent.

On October 1, 2013, the Company issued a total of 100,000 warrants with a fair market value of $481,724 for services rendered to the Company. The warrants vested immediately, have an exercise price of $7.96 per share and a term of 3 years.

On December 30, 2013, the Company issued a total of 26,667 warrants with a fair market value of $65,748 for services rendered to the Company. The warrants vested immediately, have an exercise price of $7.94 per share and a term of 2 years.

On January 2, 2014, the Company issued 20,550 warrants with a fair market value of $150,665 to a consultant for services rendered to the Company. The warrants vested immediately, have an exercise price of $7.88 per common share and a term of 5 years.

On January 7, 2014, the Company issued 100,000 warrants with a fair market value of $390,852 to a consultant for services to be rendered to the Company. 25,000 warrants vested immediately, with the remainder vesting over the next three quarterly periods, have an exercise price of $7.94 per common share and a term of 3 years.

During the year ended September 30, 2015, an aggregate of 979,090 warrants at an exercise price per share of $1.65 through $3.60 were exercised by cashless exercise. In addition, 36,548 warrants were exercised at prices ranging from $1.50 through $2.85 for which $80,003 in cash was received by the Company. 

During the year ended September 30, 2016, 15,278 shares of common stock were issued in connection with the exercise of warrants to purchase the Company’s common stock. The warrants were exercised at prices ranging from $1.50 through $1.95 per share for which $26,041 in cash was received by the Company. An additional 73,334 shares of common stock were also issued in connection with the exercise of warrants to purchase common stock. These warrants were exercised at a price of $1.62 per share and a receivable for $118,801 was recorded as September 30, 2016 to account for cash proceeds not yet received at September 30, 2016.

Below is a table summarizing the warrants issued and outstanding as of September 30, 2016:

The outstanding warrants as of September 30, 2016 have an intrinsic value of approximately $33,671. For the years ended September 30, 2016, 2015, and 2014, the Company has expensed $0, $8,559, and $1,177,095, respectively, related to the fair value of warrants issued for services.

Stock Options

Stock Options are granted for a term not exceeding five years and the nonvested options are generally forfeited in the event the employee, director or consultant terminates his or her employment or relationship with the Company. Any options that have vested at the time of termination are forfeited to the extent they are not exercised within the applicable post-employment exercise period provided in the option agreements. These options vest over one to five years.

The following assumptions were used to calculate the fair value of the Company’s options on the date of grant:

Below is a table summarizing the options issued and outstanding as of September 30, 2016 (“Price” reflects the weighted average exercise price per share):

As of September 30, 2016, the intrinsic value of both outstanding options and exercisable options was $373,334. There were no options exercised during the years ended September 30, 2016, 2015, and 2014.

The Company recognized stock-based compensation expense from stock options of $2,913,626, $3,579,788, and $2,074,487 during the years ended September 30, 2016, 2015, and 2014, respectively. As of September 30, 2016, there was $2,517,203 of stock-based compensation cost related to unvested shares of stock options which had not yet been recognized. The Company expects to recognize this compensation cost over a weighted-average period of 1.1 years.

Restricted Stock

The Company has granted restricted stock awards to its employees, directors and consultants under the 2016 Plan and related restricted stock agreements. The restricted stock-based compensation awards generally vest over a period ranging from zero to three years. These common shares are forfeited in the event the recipient’s employment or relationship with the Company is terminated prior to the lapse of the restriction.

Below is a table summarizing nonvested restricted stock shares as of September 30, 2016, and changes during the year ended September 30, 2016:

The Company recognized stock-based compensation expense from restricted stock awards of $1,754,814, $635,288, and $0 during the years ended September 30, 2016, 2015, and 2014, respectively. As of September 30, 2016, there was $1,289,333 of stock-based compensation cost related to unvested shares of restricted stock which had not yet been recognized. The Company expects to recognize this compensation cost over a weighted-average period of 1.27 years.