Note 6 - Stock-Based Compensation and Preferred Stock

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]

Note 6 – Stock-Based Compensation and Preferred Stock

Plan Information

The 1998 Incentive Stock Plan (the “Plan”) provides for awards of stock options and restricted stock to officers, directors, key employees and consultants.  The Plan provides that upon any issuance of additional shares of common stock by the Company, other than pursuant to the Plan, the number of shares covered by the Plan will increase to an amount equal to 10% of the then outstanding shares of common stock.  Under the Plan, option prices will be set by the Board of Directors and may be greater than, equal to, or less than fair market value on the grant date.

At September 30, 2013, 1,024,656 shares of common stock were reserved for the exercise of, or lapse of restrictions on, stock awards under the Plan.  Of these reserved shares, 280,141 shares were available for future grants.

Stock Options

Share-based payments to employees, including grants of employee stock options, are recognized in financial statements based on their grant date fair value over the requisite service period. Compensation expense for stock-based awards is included in the operating, selling, general and administrative expense section of the consolidated statements of income and comprehensive income.

Stock options are valued at the date of the award, which does not precede the approval date, and compensation cost is recognized on a straight-line basis over the vesting period. Stock options granted to employees generally become exercisable over a four or five-year period from the date of grant and generally expire ten years after the date of grant. Stock options granted to the Board of Directors generally become exercisable on the date of grant and generally expire ten years after the date of grant.

A summary of the status of the Company's stock options at September 30, 2013 and changes during the year then ended is presented below:

	Options			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at September 30, 2012		370,000		$	2.83
Granted		30,000		$	2.33
Exercised		(2,000	)	$	1.65	$	940
Expired	–			$	–
Forfeited		(35,000	)	$	2.43
Outstanding at September 30, 2013		363,000		$	2.83	$	0
Exercisable at September 30, 2013		163,000		$	3.30	$	0

The total intrinsic value of options exercised was $940, $2,640, and $5,670 for the years ended September 30, 2013, 2012 and 2011, respectively.  

Information about the Company’s outstanding and exercisable stock options at September 30, 2013 is as follows:

Exercise Price		Stock Options Outstanding		Exercisable Stock Options Outstanding		Remaining Contractual Life (years)
$	2.450		250,000		50,000	8.5
$	3.001		65,000		65,000	4.9
$	3.450		15,000		15,000	3.4
$	5.780		15,000		15,000	2.4
$	4.620		15,000		15,000	1.4
$	4.400		3,000		3,000	0.4
			363,000		163,000

The Company granted nonqualified stock options totaling 30,000 shares and 250,000 shares for fiscal years ended September 30, 2013 and 2012, respectively. No nonqualified stock options were granted in fiscal year 2011. The Company estimated the fair value of the options granted using the Black-Scholes option valuation model and the assumptions shown in the table below. The Company estimated the expected term of options granted based on the historical grants and exercises of the Company's options. The Company estimated the volatility of its common stock at the date of the grant based on both the historical volatility as well as the implied volatility on its common stock. The Company based the risk-free rate that was used in the Black-Scholes option valuation model on the implied yield in effect at the time of the option grant on U.S. Treasury zero-coupon issues with equivalent expected terms. The Company has never paid cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero in the Black-Scholes option valuation model. The Company amortizes the resulting fair value of the options ratably over the vesting period of the awards. The Company used historical data to estimate the pre-vesting options forfeitures and records share-based expense only for those awards that are expected to vest.

The estimated fair value at date of grant for stock options utilizing the Black-Scholes option valuation model and the assumptions that were used in the Black-Scholes option valuation model for the fiscal years 2013 and 2012 stock option grants are as follows:

	2013			2012
Estimated fair value of options at grant date	$	29,040		$	267,925
Black-Scholes model assumptions:
Average expected life (years)		6			6
Average expected volatility factor		41	%		41	%
Average risk-free interest rate		2.95	%		2.99	%
Average expected dividends yield	–			–

Compensation expense related to stock options recorded for the years ended September 30, 2013, 2012 and 2011 is as follows:

	2013		2012		2011
Fiscal year 2008 grant	$	–	$	3,562	$	10,349
Fiscal year 2012 grant		95,560		61,176	–
Fiscal year 2013 grant		1,481	–		–
Total compensation expense	$	97,041	$	64,738	$	10,349

The Company records compensation expense over the vesting term of the related options. At September 30, 2013, compensation costs related to these unvested stock options not yet recognized in the statements of income and comprehensive income was $111,189.

Restricted stock

The Company granted restricted stock in March 2013 and 2012 to its Board of Directors totaling 31,815 shares and 31,969 shares, respectively, and in March and May 2011 to its Board of Directors and certain employees totaling 58,920 shares. The restricted stock grants were valued at market value on the date of grant. The restricted shares are delivered to the directors and employees at the end of the 12 month holding period. The fair value of the shares upon issuance totaled $70,000, $70,000 and $170,000 for the 2013, 2012 and 2011 fiscal year grants, respectively. The grants are amortized over the 12 month holding period as compensation expense. Compensation expense related to restricted stock recorded for the years ended September 30, 2013, 2012 and 2011 is as follows:

	2013		2012		2011
Fiscal year 2010 grant	$	–	$	–	$	25,000
Fiscal year 2011 grant	–			95,833		74,167
Fiscal year 2012 grant		29,167		40,833	–
Fiscal year 2013 grant		40,833	–		–
	$	70,000	$	136,666	$	99,167