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Note 9 - Share-based Compensation
 6 Months Ended
Mar. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

9. SHARE-BASED COMPENSATION


Stock Option Plans


At March 31, 2014, the Company had one equity incentive plan, the 2005 Equity Incentive Plan (“2005 Equity Plan”). The 2005 Equity Plan, as amended, authorizes for issuance as stock options, stock appreciation rights, or stock awards an aggregate of 3,250,000 new shares of common stock to employees, directors or consultants. The total plan reserve includes these new shares and shares reserved under prior plans, allowing for the issuance of up to 4,999,564 shares. At March 31, 2014, there were options outstanding covering 2,809,042 shares of common stock under the 2005 Equity Plan and an additional 740,592 shares of common stock available for grant.


Stock Option Activity


The following table summarizes information about stock option activity during the six months ended March 31, 2014:


   

Number of

Shares

   

Weighted Average

Exercise Price

 

Outstanding October 1, 2013

    2,394,476     $ 1.89  

Granted

    782,500     $ 1.77  

Forfeited/expired

    (10,458 )   $ 1.93  

Exercised

    (357,476 )   $ 0.54  

Outstanding March 31, 2014

    2,809,042     $ 2.02  

Exercisable March 31, 2014

    2,087,673     $ 2.09  

Options outstanding are exercisable at prices ranging from $0.93 to $3.13 and expire over the period from 2014 to 2023 with an average life of 6.1 years. The aggregate intrinsic value of options outstanding and exercisable at March 31, 2014 was $996,539 and $739,751, respectively.


Share-Based Compensation


The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:


   

Three months ended

March 31,

   

Six months ended

March 31,

 
   

2014

   

2013

   

2014

   

2013

 

Cost of revenue

  $ 4,409     $ 1,306     $ 6,467     $ 5,205  

Selling, general and administrative

    163,385       171,044       294,561       360,875  

Research and development

    23,814       11,975       40,394       24,223  

Total

  $ 191,608     $ 184,325     $ 341,422     $ 390,303  

 The employee stock options granted in the six months ended March 31, 2014 and 2013 had a weighted-average estimated fair value of $0.85 per share and $0.70 per share, respectively, using the Black-Scholes option pricing model with the following weighted-average assumptions (annualized percentages):


   

Six months ended

March 31,

   

2014

 

2013

Volatility

 

54.0% - 76.0%

 

81.0%

Risk-free interest rate

 

0.6%-2.0%

 

0.9%

Forfeiture rate

 

10.0%

 

10.0%

Dividend yield

 

0.0%

 

0.0%

Expected life in years

 

3.2 - 6.5

 

6.4


The Company has never paid cash dividends and has no present intention to pay 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 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 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.


Since the Company has an NOL carryforward as of March 31, 2014, no excess tax benefit for the tax deductions related to share-based awards was recognized for the six months ended March 31, 2014 and 2013. As of March 31, 2014, there was approximately $600,000 of total unrecognized compensation cost related to non-vested share-based employee compensation arrangements. The cost is expected to be recognized over a weighted-average period of 1.6 years.