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12. STOCK OPTIONS

9 Months Ended

Jun. 30, 2020

On May 22, 2019, the Compensation Committee approved an amendment to its 2011 Stock Incentive Plan increasing the number of shares of common stock reserved under the Incentive Plan from 2,500,000 to 3,000,000 to common shares. There were options outstanding for the purchase of 4,895,000 common shares (including unearned stock option grants totaling 2,680,000 shares related to performance targets).

Determining Fair Value under ASC 718

The Company records compensation expense associated with stock options and other equity-based compensation using the Black-Scholes-Merton option valuation model for estimating fair value of stock options granted under our plan. The Company amortizes the fair value of stock options on a ratable basis over the requisite service periods, which are generally the vesting periods. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company estimates the volatility of our common stock based on the historical volatility of its own common stock over the most recent period corresponding with the estimated expected life of the award. The Company bases the risk-free interest rate used in the Black Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on our common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the BlackScholes-Merton option valuation model and adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed.

Stock Option Activity

The Company had the following stock option transactions during the nine months ended June 30, 2020:

During the nine months ended June 30, 2020, the Company granted stock option grants to executives, directors and consultants for 3,025,000 shares with an exercise price of $1.126 per share. The grants expire in five years and generally vest quarterly over four years. Stock option grants totaling 2,400,000 shares of common stock are performance stock option grants and are not vested until the performance is achieved.

During the nine months ended June 30, 2020, executives and employees voluntarily cancelled stock option grants for 2,589,477 shares with an exercise price of $2.656 per share.

On November 9, 2019, a former employee exercised stock option grants on a cashless basis. The former employee received 73,191 shares of common stock for vested stock option grants totaling 93,750 shares. The stock option grant had an exercise price of $0.25 per share.

There are currently 4,895,000 (including unearned stock option grants totaling 2,680,000 shares related to performance targets) options to purchase common stock at an average exercise price of $1.163 per share outstanding as of June 30, 2020 under the 2011 Stock Incentive Plan. The Company recorded $135,744 and $359,051 of compensation expense, net of related tax effects, relative to stock options for the nine months ended June 30, 2020 and 2019 and in accordance with ASC 718. As of June 30, 2020, there is approximately $479,209, net of forfeitures, of total unrecognized costs related to employee granted stock options that are not vested. These costs are expected to be recognized over a period of approximately 3.94 years.

Stock option activity for the nine months ended June 30, 2020 and the years ended September 30, 2019 and 2018 was as follows:

	Weighted Average
	Options			Exercise Price			$
Outstanding as of September 30, 2017		15,404		$	14.68		$	226,059
Granted		2,180,000			1.683			3,668,500
Exercised		-			-			-
Forfeitures		(12,736	)		14.764			(188,040	)
Outstanding as of September 30, 2018		2,182,668			1.698			3,706,519
Granted		2,870,000			2.615			7,504,850
Exercised		-			-			-
Forfeitures		(520,000	)		(3.906	)		(2,031,000	)
Outstanding as of September 30, 2019		4,532,668			2.025			9,180,369
Granted		3,025,000			1.126			3,406,600
Exercised		(73,191	)		(0.250	)		(18,298	)
Forfeitures		(2,589,477	)		(2.656	)		(6,877,721	)
Outstanding as of June 30, 2020		4,895,000		$	1.163		$	5,690,950

The following table summarizes information about stock options outstanding and exercisable as of June 30, 2020:

Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Life In Years		Weighted Average Exercise Price Outstanding		Number Exercisable		Weighted Average Exercise Price Exercisable
$	0.25		230,000		2.96	$	0.250		115,000	$	0.250
	1.10-1.25		2,940,000		4.35		1.36		270,833		1.139
	1.28-1.50		1,610,000		4.35		1.31		585,625		1.292
	1.79-2.25		115,000		4.00		0.96		65,000		0.852
			4,895,000		3.94	$	1.163		1,036,458	$	1.186

There were in the money stock option grants of 4,895,000 shares as of June 30, 2020 with an aggregate intrinsic value of $2,679,000.

On May 21, 2020, Particle approved a 2020 Stock Incentive Plan and reserved 8,000,000 shares under the Plan. The Plan requires vesting annually over four years, with no shares vested in the first two quarters.

On May 21, 2020, Particle approved stock option grants for 3,900,000 shares at $0.10 per share. The stock option grants vest annually over four years, with no vesting in the first two quarters. On May 21, 2020, Particle approved stock option grants for 1,500,000 shares at $0.10 per share to both Phillip A. Bosua and Ronald P. Erickson. The stock option grants vest (i) 33.3% upon issuance; (ii) 33.3% after the first sale; and (iii) 33.4% after one million in sales are achieved. All stock option grants were finalized during July 2020.