Note 9 - Stock Options and Stock Purchase Warrants

12 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

9. Stock Options and Stock Purchase Warrants

Stock Option Plan

In February 2010, the Board and Stockholders of RGHS approved the Stock Incentive Plan of 2010 (the “2010 Incentive Plan”) authorizing the grant of equity-based incentives to employees and consultants including stock options, stock appreciation rights, restricted stock units, restricted stock, stock awards and other awards on the lesser of (a) on a cumulative basis 15% of the aggregate shares of the Company’s common stock issued and outstanding at any grant date (currently limited to the maximum 1,400,000 shares) or (b) 1,400,000 shares. The Incentive Plan terminates in February 2020.

NxOpinion had no option plans prior to the Merger. The Company continued 25,012 legacy options under ASI’s 2000 Plan at the Merger and the 2000 Plan has expired as to new grants.

Stock-Based Compensation

The Company’s employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer, among others, and may be exercised prior to their contractual maturity.

The Company uses the Black-Scholes option pricing model to determine the estimated fair value of each option as of its grant date. These inputs are subjective and generally require significant analysis and judgment to develop. The following table sets forth the significant assumptions used in the Black-Scholes model and the calculation of stock-based compensation cost (annualized percentages):

	Year Ended September 30, 2012			Year Ended September 30, 2011
Expected volatility		117.00%			73.02%
Risk-free interest rate		1.00%			1.60%
Forfeiture rate	0.0%	-	5.0%	0.0%	-	5.0%
Dividend yield		0.00%			0.00%
Expected life in years		5			4.48

Since the Company’s stock is not actively traded, management estimates its expected volatility by reviewing the historical volatility of the common stock of a group of selected peer public companies that operate in similar industries and are similar in terms of stage of development or size and then projecting this information toward its future expected results. Judgment was used in selecting these companies, as well as in evaluating the available historical volatility for these peer companies. The risk-free interest rate is based on rates published by the Federal Reserve Board. The dividend yield of zero is because the Company has never paid cash dividends and has no present intention to pay cash dividends. The Company has a small number of option grants and no significant exercise history and accordingly has for all new option grants applied the simplified method prescribed by SEC Staff Accounting Bulletin 110, Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected Term, to estimate expected life (computed as vesting term plus contractual term divided by two). An estimated forfeiture rate was derived from the Company’s historical employee data and its estimates of the likely future actions of option holders. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates or if the Company updates its estimated forfeiture rate. Such amounts will be recorded as a cumulative adjustment in the period in which the estimate is changed.

The Company recorded $184,539 and $656,353 of stock compensation expense for the years ended September 30, 2012 and 2011, respectively. The weighted-average estimated fair value of employee and consultant stock options granted during the year ended September 30, 2012 and 2011 was $1.22 per share and $1.82 per share, respectively.

As of September 30, 2012 total estimated compensation cost of options granted but not yet vested was approximately $44,653 and is expected to be recognized over the weighted average period of 0.6 years.

Stock Option Summary Information

The following table summarizes stock option activity for the years ended September 30, 2012 and 2011:

	September 30, 2012									September 30, 2011
	Shares			Weighted- Average Exercise Price		Aggregate Intrinsic Value (3)		Weighted- Average Life (Years)		Shares			Weighted- Average Exercise Price		Aggregate Intrinsic Value (2)		Weighted- Average Life (Years)
Outstanding beginning of period		774,576		$	3.33						590,078		$	3.22
Granted		5,000		$	1.50						190,000		$	3.62
Exercised		-									(600	)	$	3.00
Cancelled		(9,803	)	$	6.75						(4,902	)	$	5.45
Outstanding end of period (1)		769,773		$	3.21		-		3.0		774,576		$	3.33		-		4.0
Options exercisable at end of period		738,573		$	3.21		-		3.0		516,616		$	3.14		-		3.9

(1) Options outstanding are exercisable at prices ranging from $1.50 to $6.75 and expire over the period 2013 to 2016.

(2) Aggregate intrinsic value is based on the closing price of the Company’s common stock on September 30, 2011 of $2.20.

(3) Aggregate intrinsic value is based on the closing price of the Company’s common stock on September 30, 2012 of $0.51.

The following table summarizes information about stock options outstanding at September 30, 2012:

Range of exercise prices $	Number outstanding at September 30, 2012 #		Number exercisable at September 30, 2012 #		Weighted average exercise price $		Weighted average remaining contractual life Years		Weighted average exercise price of options exercisable at September 30, 2012 $
$1.50 - $3.00		395,401		395,401		2.78		3.0		2.78
$3.30 - $3.40		278,500		278,500		3.34		2.9		3.34
$3.75 - $6.75		100,672		64,672		5.23		3.3		5.25

Warrants

The following table summarizes warrant activity for the years ended September 30, 2011 and 2012:

	Number			Average Exercise Price Per Share
Shares purchasable under outstanding warrants at October 1, 2010		862,041		$	1.00
Stock purchase warrants granted in connection with land sale		150,000		$	2.50
Stock purchase warrants granted with equity sales		75,000		$	1.00
Stock purchase warrants exercised		(75,000	)	$	1.00
Shares purchasable under outstanding warrants at September 30, 2011		1,012,041		$	1.45
Shares purchasable under outstanding warrants at September 30, 2012		1,012,041		$	1.45

At September 30, 2012 the Company had the following warrants outstanding:

Description	Number of Common Shares		Exercise Price Per Share		Expiration Date
Warrants		541,000	$	1.00	December 31, 2014
Warrants		170,000	$	2.50	March 31, 2013
Warrants (1)		51,041	$	2.50	May 28, 2013
Warrants (2)		100,000	$	0.01	May 28, 2013
Warrants		50,000	$	2.50	October 22, 2015
Warrants		50,000	$	2.50	November 12, 2015
Warrants		50,000	$	2.50	January 12, 2016
		1,012,041

(1) A total of 32,141 of these warrants are held by directors.

(2) These 100,000 warrants are held by the Company’s Chief Executive Officer.