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Share-Based Compensation
 12 Months Ended
Sep. 30, 2011
Share-Based Compensation [Abstract]  
Share-Based Compensation

13. SHARE-BASED COMPENSATION

Stock Option Plans

At September 30, 2011, the Company had one equity incentive plan. The 2005 Equity Incentive Plan ("2005 Equity Plan"), as amended, authorizes for issuance as stock options, stock appreciation rights, or stock awards for an aggregate of 3,250,000 shares of common stock to employees, directors or consultants. The total 2005 Equity Plan reserve includes these shares and shares reserved under other plans prior to the 2005 Equity Plan, allowing for the issuance of up to 4,999,564 shares. At September 30, 2011, there were options outstanding covering 4,181,339 shares of common stock under the 2005 Equity Plan and 251,977 shares of common stock available for grant for a total of 4,433,316 currently available under the 2005 Equity Plan.

Share-Based Compensation

The Company's employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.

The Company recorded $422,643 and $475,472 of stock compensation expense for the years ended September 30, 2011 and 2010, respectively. The weighted-average estimated fair value of employee stock options granted during the year ended September 30, 2011 and 2010 was $1.60 per share and $0.72 per share, respectively, using the Black-Scholes option-pricing model with the following weighted-average assumptions (annualized percentages):

 

Years Ended September 30,

      2011    2010

Volatility

      83.0% - 93.0%    80.0% - 82.0%

Risk-free interest rate

      .99% - 1.77%    .78% - 2.36%

Forfeiture rate

      10.0%    20.0%

Dividend yield

      0.0%    0.0%

Expected life in years

      3.4 - 6.5    3.4 - 4.9

The Company has never paid cash dividends and has no present intention to pay 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 contractual term of the options was five years until it was changed to ten years in August 2011. 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. Such revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed.

As of September 30, 2011, there was approximately $700,000 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted-average period of 1.5 years. To the extent the forfeiture rate is different from what the Company anticipated, stock-based compensation related to these awards will be different from the Company's expectations.

Stock Option Summary Information

A summary of activity for the Company's stock option plans, as well as options granted outside such plans as of September 30, 2011 and 2010, is presented below:

 

     Number
of Shares		     Weighted Average
Exercise Price		  

Fiscal 2010:

    

Outstanding October 1, 2009

      4,068,409      $ 2.96   

Granted

      781,500      $ 1.28   

Canceled/expired

      (378,876 )    $ 5.32   

Exercised

      (62,291 )    $ 0.49   
  

 

 

    

Outstanding September 30, 2010

      4,408,742      $ 2.50   
  

 

 

    

Exercisable September 30, 2010

      3,798,407      $ 2.69   
  

 

 

    

Fiscal 2011:

    

Outstanding October 1, 2010

      4,408,742      $ 2.50   

Granted

      378,000      $ 2.39   

Canceled/expired

      (473,638 )    $ 3.60   

Exercised

      (131,765 )    $ 1.10   
  

 

 

    

Outstanding September 30, 2011

      4,181,339      $ 2.40   
  

 

 

    

Exercisable September 30, 2011

      3,705,939      $ 2.47   
  

 

 

    

Weighted average fair value of options granted during the year

      $ 1.60   
    

 

 

  

The aggregate intrinsic value for options outstanding and options exercisable at September 30, 2011 was $1,490,380 and $1,370,101, respectively. The aggregate intrinsic value represents the difference between the Company's closing stock price on the last day of trading during the year, which was $1.85 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of options exercised during 2011 and 2010 was $182,191 and $71,796, respectively. Cash received from the exercise of stock options for the year ended September 30, 2011 was $145,450. The Company recognized the $182,191 as a tax benefit in the income tax provision for the year ended September 30, 2011.

 

The following table summarizes information about stock options outstanding at September 30, 2011:

 

Range of
Exercise
Prices

   Number
Outstanding		     Weighted
Average
Remaining
Contractual
Life		     Weighted
Average
Exercise
Price		     Number
Exercisable		     Weighted
Average
Exercise
Price		  
$0.46-$1.00     776,482        2.19      $ 0.48        774,919      $ 0.48   
$1.01-$2.00     1,095,857        2.97      $ 1.47        867,574      $ 1.51   
$2.01-$3.00     494,500        6.43      $ 2.30        253,946      $ 2.27   
$3.01-$4.00     1,106,000        0.68      $ 3.40        1,101,000      $ 3.40   
$4.01-$4.81     708,500        0.37      $ 4.47        708,500      $ 4.47   

 

  

 

 

        

 

 

    
$0.46-$4.81     4,181,339        2.19      $ 2.40        3,705,939      $ 2.47   

 

  

 

 

        

 

 

    

The Company recorded non-cash share-based compensation expense for employees, directors and consultants of $422,643 and $475,472, respectively, for the fiscal years ended September 30, 2011 and 2010. The amounts of share-based compensation expense are classified in the consolidated statements of operations as follows:

 

Years Ended September 30,

    2011      2010  

Cost of revenue

    $ 25,928       $ 41,641   

Selling, general and administrative

      335,796         380,688   

Research and development

      60,919         53,143   
  

 

 

     

 

 

  

Total

    $ 422,643       $ 475,472