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Note 10 - Share-based Compensation
 6 Months Ended
Mar. 31, 2015
Notes to Financial Statements  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
10
. SHARE-BASED COMPENSATION
 
Stock Option Plans
 
At March 31, 2015, the Company had two equity incentive plans. The 2005 Equity Incentive Plan (“2005 Equity Plan”) was terminated with respect to new grants in March 2015, but remains in effect for grants issued prior to that time. The 2015 Equity Incentive Plan (“2015 Equity Plan”) was approved by the Company’s Board of Directors on January 19, 2015 and by the Company’s stockholders on March 18, 2015. The 2015 Equity Plan authorizes for issuance as stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, an aggregate of 5,000,000 new shares of common stock to employees, directors, advisors or consultants. At March 31, 2015, there were options outstanding covering 2,992,535 and 80,000 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively.
 
Stock Option Activity
 
The following table summarizes information about stock option activity during the six months ended March 31, 2015:
 
 
 
Number
 
 
Weighted Average
 
 
 
of Shares
 
 
Exercise Price
 
Outstanding October 1, 2014
     2,530,535     $ 2.09  
Granted
     664,500     $ 2.77  
Forfeited/expired
     (38,833 )   $ 2.48  
Exercised
     (83,667 )   $ 2.39  
Outstanding March 31, 2015
     3,072,535     $ 2.25  
Exercisable March 31, 2015
     2,430,233     $ 2.23  
 
Options outstanding are exercisable at prices ranging from $0.93 to $3.17 and expire over the period from 2015 to 2023 with an average life of 5.8 years. The aggregate intrinsic value of options outstanding and exercisable at March 31, 2015 was $1,101,327 and $926,323, respectively.
 
Share-Based Compensation
 
The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of income as follows:
 
 
 
Three months ended
 
 
Six months ended
 
 
 
March 31,
 
 
March 31,
 
 
 
2015
 
 
2014
 
 
2015
 
 
2014
 
Cost of revenue
   $ 6,851     $ 4,409     $ 11,671     $ 6,467  
Selling, general and administrative
     125,224       163,385       230,446       294,561  
Research and development
     45,332       23,814       66,737       40,394  
Total
   $ 177,407     $ 191,608     $ 308,854     $ 341,422  
 
The employee stock options granted in the six months ended March 31, 2015 and 2014 had a weighted-average estimated fair value of $1.13 per share and $0.85 per share, respectively, using the Black-Scholes option pricing model with the following weighted-average assumptions (annualized percentages):
 
 
 
Six months ended
 
 
 
March 31,
 
 
 
2015
 
 
2014
 
Volatility
  51.0% - 62.0%     54.0% - 76.0%  
Risk-free interest rate
  1.0% - 1.6%     0.6% - 2.0%  
Forfeiture rate
    10.0%         10.0%    
Dividend yield
    0.0%         0.0%    
Expected life in years
  3.2 - 4.6     3.2    6.5  
 
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, 2015, no excess tax benefit for the tax deductions related to share-based awards was recognized for the six months ended March 31, 2015 and 2014. As of March 31, 2015, there was approximately $800,000 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.