Annual report pursuant to Section 13 and 15(d)

Note 7 - Share-Based Payments

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Note 7 - Share-Based Payments
 12 Months Ended
Sep. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Note 7.        Share-based Payments

In March 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan which will be utilized to provide equity opportunities and performance–based incentives to attract, retain and motivate those persons who make (or are expected to make) important contributions to the Company.  A total of 2,000,000 shares are available for issuance under the plan. As of September 30, 2012, a total of 766,932 shares have been granted under the plan, of which 150,000 shares were in the form of stock options and the remainder were in the form of restricted stock or other share grants.

Stock Option Plans

Under the Company’s previous share-based long-term incentive compensation plan, the 1997 Stock Option Plan, the Company granted non-qualified stock options to employees. There are no shares available for grant under this plan which expired on December 31, 2006. Options issued under this plan expire 10 years after the date of grant and generally vested 1/36 per month, with full vesting after three years. Under the Company’s 2008 Stock Incentive Plan, options issued expire 10 years after the date of grant and vest 1/36 per month, with full vesting after three years. The Company did not grant any options during the years ended September 30, 2012, 2011 and 2010.

Compensation expense is recognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based on historical experience and future expectations. Stock compensation expense related to options for the years ended September 30, 2012, 2011 and 2010 was approximately $60,000, $90,000 and $92,000, respectively.

Option Activity

The following table summarizes the stock options outstanding and exercisable at September 30, 2012:

         
Weighted Average
       
   
Shares
   
Exercise Price
Per Share
   
Remaining
Contractual Term
(years)
   
Aggregate
Intrinsic
Value
 
Outstanding at September 30, 2009
    2,269,000     $ 1.58                  
Granted
    -       -                  
Exercised
    (435,000 )     1.43                  
Forfeited
    -       -                  
Outstanding at September 30, 2010
    1,834,000     $ 1.61                  
Granted
    -       -                  
Exercised
    -       -                  
Forfeited
    -       -                  
Outstanding at September 30, 2011
    1,834,000     $ 1.61                  
Granted
    -       -                  
Exercised
    (1,557,750 )     1.44                  
Forfeited
    -       -                  
Outstanding at September 30, 2012
    276,250     $ 2.57       4.78     $ 1,266,000  
Exercisable on September 30, 2012
    276,250     $ 2.57       4.78     $ 1,266,000  

During the year ended September 30, 2012, a number of stock option holders exercised 1,557,750 stock options, using the cashless exercise option available under the plan which entitled them to 1,166,017 shares of common stock.  Some option holders surrendered 363,035 of the shares due them in payment of taxes, bringing the net number of shares issued to 802,982.  No stock options were exercised during fiscal year 2011. During the year ended September 30, 2010, a number of stock option holders exercised 325,000 stock options, using the cashless exercise option available under the plan which entitled them to 186,220 shares of common stock. Proceeds of $157,900 were received during the year ended September 30, 2010 for the exercise of an additional 110,000 stock options.

The aggregate intrinsic value in the table above is before income taxes, based on the Company’s closing stock price of $7.15 on the last day of business for the period ended September 30, 2012. The total intrinsic value of options exercised during the years ended September 30, 2012 and 2010 was approximately $6,888,000 and $1,792,000, respectively.

There was no unrecognized compensation cost for stock options as of September 30, 2012.  The deferred tax asset and realized tax benefit from stock options exercised and other share-based payments for the years ended September 30, 2012, 2011 and 2010 was not recognized, based on the Company’s election of the “with and without” approach.

Restricted Stock

The Company issues restricted stock to employees, directors and consultants. Such issuances may have vesting periods that range from one to three years. In addition, the Company has issued stock awards to certain employees that provide for future issuance contingent on continued employment for periods that range from one to three years.

A summary of the non-vested stock activity for fiscal years 2012, 2011 and 2010 is summarized in the table below:

   
Shares
   
Weighted Average
Grant -Date
Fair Value
 
Total Outstanding September 30, 2009
    119,589     $ 3.16  
Stock Granted
    35,250       4.71  
Vested
    (105,250 )     3.61  
Forfeited
    (5,000 )     4.71  
Total Outstanding September 30, 2010
    44,589     $ 3.16  
Stock Granted
    293,750       5.71  
Vested
    (142,335 )     4.97  
Forfeited
    (2,500 )     5.07  
Total Outstanding September 30, 2011
    193,504     $ 5.68  
Stock Granted
    52,500       4.16  
Vested
    (149,686 )     5.23  
Forfeited
    (2,500 )     3.94  
Total Outstanding September 30, 2012
    93,818     $ 5.59  

The Company granted a total of 52,500 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the year ended September 30, 2012. The fair value of the awards granted was approximately $218,000. All such shares of restricted stock vest and all such shares must be issued pursuant to promises to issue common stock in  September 2012 through September 2014, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date. There were 2,500 shares of restricted stock forfeited during the year ended September 30, 2012.  The Company granted a total of 293,750 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the year ended September 30, 2011. The fair value of the awards granted was approximately $1,677,000. All such shares of restricted stock vest and all such shares must be issued pursuant to promises to issue common stock between September 2011 and December  2013, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date. The Company granted 35,250 shares of restricted stock during the year ended September 30, 2010. The fair value of the awards granted was approximately $166,000. All such shares of restricted stock vested in September 2010.

The Company recognized share-based compensation expense for restricted stock or promises to issue shares of common stock of approximately $782,000, $706,000 and $379,000 for the years ended September 30, 2012, 2011 and 2010, respectively, $199,000, $212,000 and $206,000 of which was included in accrued expenses at year end since the related shares have not yet been issued at September 30, 2012, 2011 and 2010, respectively.  This expense was included in selling, general and administrative expenses for the respective periods. As of September 30, 2012, there was approximately $525,000, representing approximately 94,000 unvested shares, of total unrecognized compensation cost related to non-vested restricted stock compensation arrangements granted under the incentive plans. This unrecognized cost will be recognized over the weighted average period of the next 1.13 years.

Common Stock Purchase Warrants

The Company did not issue any common stock purchase warrants in fiscal year 2012, 2011 or 2010.  In fiscal year 2012, a warrant holder exercised 10,000 warrants which provided proceeds of $13,000. The warrant holder also exercised 18,000 warrants using the cashless exercise option available within the warrant agreements which entitled the warrant holder to 14,795 shares of common stock.  There were no warrant exercises during fiscal year 2011.  In fiscal year 2010, a warrant holder exercised 30,000 warrants using the cashless exercise option available within the warrant agreements which entitled the warrant holder to 23,085 shares of common stock.  In fiscal 2010, warrant holders exercised 626,500 warrants which provided proceeds of $725,600.  There is no unrecognized compensation cost related to warrants as of September 30, 2012.

At September 30, 2012, 52,000 warrants issued in connection with investor relations were outstanding and exercisable. These warrants have an exercise price of $1.30, remaining life of 3.79 years and aggregate intrinsic value of $304,200.  The aggregate intrinsic value is before taxes, based on the Company’s closing price of $7.15 on the last day of business for the year ended September 30, 2012.