Note 12 - Share-based Compensation

12 Months Ended

Sep. 30, 2013

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

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

12. SHARE-BASED COMPENSATION

Stock Option Plans

At September 30, 2013, the Company had one equity incentive plan. The 2005 Equity Incentive Plan (“2005 Equity Plan”), as amended, authorizes for issuance as stock options, stock appreciation rights, or stock awards for an aggregate of 3,250,000 shares of common stock to employees, directors or consultants. The total 2005 Equity Plan reserve includes these shares and shares reserved under other plans prior to the 2005 Equity Plan, allowing for the issuance of up to 4,999,564 shares. At September 30, 2013, there were options outstanding covering 2,394,476 shares of common stock under the 2005 Equity Plan and 1,512,634 shares of common stock available for grant for a total of 3,907,110 currently available under the 2005 Equity Plan.

Share-Based Compensation

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

The Company recorded $736,378 and $684,451 of stock compensation expense for the years ended September 30, 2013 and 2012, respectively. The weighted average estimated fair value of employee stock options granted during the year ended September 30, 2013 and 2012 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

	2013			2012
Volatility	74.0%	-	81.0%	81.0%	-	82.0%
Risk-free interest rate	0.93%	-	1.70%	0.8%	-	1.1%
Forfeiture rate	10.0%			10.0%
Dividend yield	0.0%			0.0%
Expected life in years	6.4			5.4	-	6.4
Weighted average fair value of options granted during the period	$0.86			$0.88

The Company has never paid cash dividends. Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected life of the options. The risk-free interest rate is based on rates published by the Federal Reserve Board. The contractual term of the options is ten years. The expected life is based on observed and expected time to post-vesting exercise. The expected forfeiture rate is based on past experience and employee retention data. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates. Such revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed.

As of September 30, 2013, there was approximately $400,000 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 1.2 years. To the extent the forfeiture rate is different from what the Company anticipated, stock-based compensation related to these awards will be different from the Company’s expectations.

Stock Option Summary Information

A summary of activity for the Company’s stock option plans, as well as options granted outside such plans as of September 30, 2013 and 2012, is presented below:

	Number of Shares			Weighted Average Exercise Price
Fiscal 2012:
Outstanding October 1, 2011		4,181,339		$	2.40
Granted		1,237,500		$	1.33
Forfeited/expired		(1,955,500	)	$	3.67
Outstanding September 30, 2012		3,463,339		$	1.31
Exercisable September 30, 2012		2,575,857		$	1.25
Fiscal 2013:
Outstanding October 1, 2012		3,463,339		$	1.31
Granted		804,500		$	2.88
Forfeited/expired		(1,347,157	)	$	1.48
Exercised		(526,206	)	$	0.65
Outstanding September 30, 2013		2,394,476		$	1.89
Exercisable September 30, 2013		2,059,256		$	1.82
Weighted average fair value of options granted during the year				$	0.86

Under the Stipulation of Settlement, Thomas R. Brown, President and Chief Executive Officer of the Company, agreed to increase the exercise price of the option granted to Mr. Brown in May 2012 for 750,000 shares from $1.33 to $3.00 per share. The table above reflects the option modification as an exchange of the original award, by reflecting the forfeiture of the original award at $1.33 and the grant of the modified award at $3.00.

The aggregate intrinsic value for options outstanding and options exercisable at September 30, 2013 was $483,392 and $464,364, respectively. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last day of trading during the year, which was $1.45 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the year ended September 30, 2013 was $391,238 and cash received from these exercises was $340,450. There were no stock options exercised in the year ended September 30, 2012. The Company recognized $391,238 as a tax benefit in the income tax provision for the year ended September 30, 2013.The Company did not recognize any tax benefit for exercised stock options in the year ended September 30, 2012.

The following table summarizes information about stock options outstanding at September 30, 2013:

Range of Exercise Prices			Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$0.46	-	$1.00		333,976		0.30	$	0.49		329,976	$	0.48
$1.01	-	$1.50		906,500		4.26	$	1.27		776,843	$	1.26
$1.51	-	$2.00		12,500		6.88	$	1.57		6,156	$	1.63
$2.01	-	$2.50		276,000		7.22	$	2.26		274,125	$	2.26
$2.51	-	$3.13		865,500		7.78	$	2.95		672,156	$	2.94
$0.46	-	$3.13		2,394,476		5.34	$	1.89		2,059,256	$	1.82

Under the Stipulation of Settlement, Thomas R. Brown agreed to increase the exercise price of the option granted to Mr. Brown in May 2012 for 750,000 shares from $1.33 to $3.00 per share. This price change was effective on September 10, 2013. The remaining exercise period and term did not change, and as per ASC 718 “Compensation—Stock Compensation”, the Company is required to recognize compensation cost for an equity award at least equal to the fair value of the award at the grant date. As a result, compensation expense was not reduced as a result of this change.

The Company recorded non-cash share-based compensation expense for employees, directors and consultants of $736,378 and $684,451, respectively, for the fiscal years ended September 30, 2013 and 2012. The amounts of share-based compensation expense are classified in the consolidated statements of operations as follows:

Years Ended September 30,	2013		2012
Cost of revenue	$	7,336	$	21,662
Selling, general and administrative		681,147		603,989
Research and development		47,895		58,800
Total	$	736,378	$	684,451