NOTE 8 SHARE BASED COMPENSATION

2011 Long Term Incentive Plan

In March 2011, shareholders of the Company approved the 2011 Long Term Incentive Plan (the “2011 Plan”), which authorizes 850,000 shares of common stock for grants of various types of equity awards to officers, directors, employees, consultants, and independent contractors. Forfeited awards are eligible for re-grant under the 2011 Plan. The total shares of common stock available for grants of equity awards under the 2011 Plan was 185,647 as of September 30, 2014. The exercise prices of stock options granted may not be less than the fair market value of the common stock as quoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee administers the plan. Options generally expire ten years after the date of grant.

2007 Equity Incentive Plan

The 2007 Equity Incentive Plan (the “2007 Plan”), which was approved by shareholders of the Company in May 2007, and, as amended, in February 2010, authorizes an aggregate of 800,000 shares of common stock for grants of restricted common stock and stock options to officers, employees, and non-employee directors of the Company. Forfeited awards are eligible for re-grant under the 2007 Plan. The total shares of common stock available for grants of equity awards under the 2007 Plan was 130,015 as of September 30, 2014. The exercise price of stock options granted may not be less than the fair market value of the common stock as quoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee administers the 2007 Plan. Options generally expire ten years after the date of grant.

1996 Stock Incentive Plan

The Company’s 1996 Stock Incentive Plan (the “1996 Plan”) expired in accordance with its terms in November 2006. The exercise price of incentive stock options granted under the 1996 Plan to officers, employees, and non-employee directors of the Company was required by 1996 Plan provisions to be equal at least to the fair market value of the common stock at the date of grant. In general, options under this plan expire ten years after the date of grant. Unexercised options granted prior to 1996 Plan expiration remain outstanding until the earlier of exercise or option expiration. Under the 1996 Plan, 30,000 fully vested common stock options are the only awards that remain outstanding and unexercised, all at exercise prices higher than the fair market value of the common stock at September 30, 2014.

Stock Option Awards

On October 1, 2012, the Company granted a ten-year incentive stock option to purchase 60,000 shares of common stock at exercise prices ranging from $3.77 to $5.31 per share to an executive of the Company, pursuant to the 2011 Plan. The option vests on April 3, 2015. The option had a grant date value of $30,000.

On October 16, 2012, the Company granted ten-year non-qualified stock options to purchase an aggregate of 60,000 shares of common stock at an exercise price of $1.23 per share to directors of the Company, pursuant to the 2011 Plan. The options vested on the first anniversary of the date of grant. The options had an aggregate grant date value of $42,600.

On December 11, 2013, the Company granted ten-year incentive stock options to purchase an aggregate of 32,500 shares of common stock (25,000 shares were granted pursuant to the 2007 Plan and 7,500 shares were granted pursuant to the 2011 Plan) at an exercise price of $1.59 per share to executives of the Company. The options vest ratably over three years on the anniversaries of the date of grant. The options had an aggregate grant date value of $29,250.

The fair value of each stock option on the date of grant was estimated using a Black-Scholes option-pricing formula applying the following assumptions for each respective period:

	Fiscal Years Ended September 30,
	2014		2013
Risk free interest rate	1.86	%	0.06% to 0.70	%
Expected term (years)	6.00		5.00
Expected volatility	63.2	%	70% to 70.4	%
Expected dividends	0	%	0	%
Estimated annual forfeiture rate	10	%	0% to 10	%

During the fiscal years ended September 30, 2014 and 2013, the Company granted 32,500 and 120,000 stock options at weighted average grant date fair values per share of $0.90 and $0.61, respectively.

The expected term represents the period over which the stock option awards are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. The Company based the risk-free interest rate used in its assumptions on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the award’s expected term. The volatility factor used in the Company’s assumptions is based on the historical price of its stock over the most recent period commensurate with the expected term of the award. The Company historically has not paid any dividends on its common stock and had no intention to do so on the date the share-based awards were granted.

The Company recognized approximately $43,000 and $220,000 of compensation expense in continuing operations for stock option awards in its consolidated statements of operations and comprehensive loss for the fiscal years ended September 30, 2014 and 2013, respectively.

As of September 30, 2014, there was approximately $50,574 of total unrecognized compensation cost related to unvested stock option awards, which is expected to be recognized over the remainder of the weighted average vesting period of 1.08 years.

The following table summarizes stock option activity during the fiscal years ended September 30, 2014 and 2013:

					Weighted
			Weighted		Average
			Average		Remaining
	Number of		Exercise		Life		Intrinsic
	Options		Price		In Years		Value
Outstanding, September 30, 2012		1,142,000	$	3.31
Granted		120,000		3.14
Exercised		-		-
Forfeited		(365,000)		3.43
Outstanding, September 30, 2013		897,000	$	3.24
Granted		32,500		1.59
Exercised		-		-
Forfeited		(151,000)		3.50
Outstanding, September 30, 2014		778,500	$	2.70		5.4	$	12,000

Exercisable, September 30, 2014		642,582	$	2.96		4.5	$	6,000

The table below provides additional information regarding stock option awards that were outstanding and exercisable at September 30, 2014:

Options Outstanding			Options Exercisable
			Weighted
	Outstanding		Average		Exercisable
Exercise	Number of		Remaining Life		Number of
Price	Options		In Years		Options

$1.23 to $1.80		105,000		7.1		80,000
$2.02 to $2.85		271,000		2.0		268,000
$3.00 to $3.79		322,500		6.5		264,582
$5.31		50,000		-		-
$6.02		20,000		1.6		20,000
$15.91		10,000		0.6		10,000
		778,500				642,582

Restricted Stock Awards

On November 8, 2012, the Company granted an aggregate of 371,375 shares of restricted stock (141,375 shares were granted pursuant to the 2007 Plan and 230,000 shares were granted pursuant to the 2011 Plan) to executives and employees of the Company. The shares vest ratably over three years on the anniversaries of the date of grant. The aggregate grant date value of $430,795 will be recognized proportionate to the vesting period.

On December 11, 2013, the Company granted an aggregate of 90,000 shares of restricted stock to directors of the Company, pursuant to the 2007 Plan. The shares vest on the first anniversary of the date of grant. The aggregate grant date value of $143,100 will be recognized proportionate to the vesting period.

On January 9, 2014, the Company granted 5,000 shares of restricted stock to an employee of the Company, pursuant to the 2011 Plan. The shares vest ratably on each of November 11, 2014, November 11, 2015 and November 11, 2016. The grant date value of $8,350 will be recognized proportionate to the vesting period.

For the fiscal years ended September 30, 2014 and 2013, the Company recognized approximately $189,000 and $217,000 of compensation, net of forfeitures, from continuing operations in its consolidated statements of operations and comprehensive loss related to restricted stock awards.

As of September 30, 2014, there was approximately $112,000 of unrecognized compensation cost related to shares of unvested restricted stock that will be recognized over the weighted average remaining vesting period 0.51 years.

The following table summarizes restricted stock activity during the fiscal years ended September 30, 2014 and 2013:

				Weighted
				Average	Total
	Number of			Grant Date	Grant Date
	Shares			Fair Value	Fair Value

Non-vested, September 30, 2012		7,500	$	2.02	$	15,150
Granted		371,375		1.16		430,795
Vested		(7,500)		2.02		(15,150)
Forfeited		-		-		-
Non-vested, September 30, 2013		371,375	$	1.16	$	430,795
Granted		95,000		1.59		151,450
Vested		(123,794)		1.16		(143,601)
Forfeited		(85,000)		1.16		(98,600)
Non-vested, September 30, 2014		257,581	$	1.32	$	340,044

Warrants

As of September 30, 2014, warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.75 issued in the fiscal year ended September 30, 1999 were outstanding. By their terms these warrants expire 90 days after a registration statement registering common stock (other than pursuant to employee benefit plans) is declared effective by the United States Securities and Exchange Commission (the “Commission”). As of September 30, 2014, no such registration statement has been filed with the Commission.