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Stock-Based Compensation

9 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

NOTE 8. STOCK-BASED COMPENSATION

Arrowhead has two plans that provide for equity-based compensation. Under the 2000 Stock Option Plan, 153,200 shares of Arrowhead’s Common Stock are reserved for issuance upon exercise of non-qualified stock options. No further grants can be made under the 2000 Stock Option Plan. The 2004 Equity Incentive Plan reserves 1,965,860 shares for the grant of stock options, stock appreciation rights, restricted stock awards and performance unit/share awards by the Board of Directors to employees, consultants and others. As of June 30, 2012, there were options granted and outstanding to purchase 153,200 and 1,201,694 shares of Common Stock under the 2000 Stock Option Plan and the 2004 Equity Incentive Plan, respectively. During the nine months ended June 30, 2012, 660,000 options were granted under the 2004 Equity Incentive Plan. All share and per share data in this footnote has been adjusted to reflect the 1 for 10 reverse stock split effected on November 17, 2011.

The following tables summarize information about stock options:


		Number of Options Outstanding				Weighted- Average Exercise Price Per Share				Weighted- Average Remaining Contractual Term				Aggregate Intrinsic Value
Balance At September 30, 2010			812,334			$	10.62
Granted			20,000				5.86
Cancelled			(100,539	)			21.32
Exercised			(2,699	)			5.10

Balance At September 30, 2011			729,096				9.03
Granted			924,500				4.96
Cancelled			(42,919	)			11.77
Exercised			(4,583	)			5.20

Balance At June 30, 2012			1,606,094			$	6.63				8.1 years			$	0

Exercisable At June 30, 2012			712,283			$	8.25				6.5 years			$	0

Stock-based compensation expense for the nine months ended June 30, 2012 and 2011 was $837,188 and $1,078,951, respectively. For the nine months ended June 30, 2012 and 2011, $0 and $27,519, respectively, of this expense is included in discontinued operations. There is no income tax benefit as the company is currently operating at a loss and an actual income tax benefit may not be realized. The loss creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.

The fair value of the options granted by Arrowhead for the nine months ended June 30, 2012 and June 30, 2011 is estimated at $3,505,912 and $62,964, respectively. The aggregate fair value of options granted by Calando during the nine months ended June 30, 2012 is estimated at $33,690. No Calando stock options were issued during the nine months ended June 30, 2011.

The intrinsic value of the options exercised during the nine months ended June 30, 2012 was $0; no options were exercised during the nine months ended June 30, 2011.

As of June 30, 2012, the pre-tax compensation expense for all unvested stock options at Arrowhead in the amount of approximately $3,547,601 will be recognized in our results of operations over a weighted average period of 3.2 years. As of June 30, 2012, the pre-tax compensation expense for all unvested stock options at Calando in the amount of approximately $72,876 will be recognized in our results of operations over a weighted average period of 2.7 years.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. The determination of the fair value of each stock option is affected by our stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The assumptions used to value stock options are as follows:


		Nine months ended June 30,
		2012		2011
Dividend yield		—			—
Risk-free interest rate		0.9% to 1.7%			2.9%
Volatility		90% - 100%			100%
Expected life (in years)		6.25			6.25
Weighted average grant date fair value per share of options granted		$3.79			$5.20

The dividend yield is zero as the Company currently does not pay a dividend.

The risk-free interest rate is based on the U.S. Treasury bond.

Volatility is estimated based on volatility average of the Company’s Common Stock price.

Tabular disclosure of components of a stock option or other award plan under which equity-based compensation is awarded to employees, typically comprised of the amount of unearned compensation (deferred compensation cost), compensation expense, and changes in the quantity and fair value of the shares (or other type of equity) granted, exercised, forfeited, and issued and outstanding pertaining to that plan. Disclosure may also include nature and general terms of such arrangements that existed during the period and potential effects of those arrangements on shareholders, effect of compensation cost arising from equity-based payment arrangements on the income statement, method of estimating the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period, cash flow effects resulting from equity-based payment arrangements and, for registrants that accelerate vesting of out of the money share options, reasons for the decision to accelerate.

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