Note 10 - Share-based Compensation

9 Months Ended

Jun. 30, 2015

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

. SHARE-BASED COMPENSATION

Stock Option Plans

At June 30, 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 June 30, 2015, there were options outstanding covering 2,669,035 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 nine months ended June 30, 2015:

	Number			Weighted Average
	of Shares			Exercise Price
Outstanding October 1, 2014		2,530,535		$	2.09
Granted		664,500		$	2.77
Forfeited/expired		(51,833	)	$	2.58
Exercised		(394,167	)	$	1.26
Outstanding June 30, 2015		2,749,035		$	2.36
Exercisable June 30, 2015		2,208,448		$	2.36

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 6.2 years. The aggregate intrinsic value of options outstanding and exercisable at June 30, 2015 was $362,719 and $297,220, 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				Nine months ended
	June 30,				June 30,
	2015		2014		2015		2014
Cost of revenue	$	7,024	$	2,702	$	18,695	$	9,169
Selling, general and administrative		119,653		125,407		350,099		419,968
Research and development		26,186		19,427		92,923		59,821
Total	$	152,863	$	147,536	$	461,717	$	488,958

The employee stock options granted in the nine months ended June 30, 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):

	Nine months ended
	June 30,
	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. 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 June 30, 2015, no excess tax benefit for the tax deductions related to share-based awards was recognized for the nine months ended June 30, 2015 and 2014. As of June 30, 2015, there was approximately $700,000 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 1.4 years.