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Share-Based Compensation
 9 Months Ended
Jun. 30, 2011
Share-Based Compensation  
Share-Based Compensation

12. SHARE-BASED COMPENSATION

Stock Option Plans

At June 30, 2011, the Company had one equity incentive plan, the 2005 Equity Incentive Plan ("2005 Equity Plan"). The 2005 Equity Plan, as amended, authorizes for issuance as stock options, stock appreciation rights, or stock awards an aggregate of 3,250,000 new shares of common stock to employees, directors or consultants. The total plan reserve includes these new shares and shares reserved under prior plans, allowing for the issuance of up to 4,999,564 shares. At June 30, 2011, there were options outstanding covering 4,156,524 shares of common stock under the 2005 Equity Plan and an additional 306,977 shares of common stock available for grant.

Stock Option Activity

The following table summarizes information about stock option activity during the nine months ended June 30, 2011:

 

     Number
of Shares		     Weighted Average
Exercise Price		  

Fiscal 2011:

     

Outstanding October 1, 2010

      4,408,742      $ 2.50   

Granted

      123,000      $ 2.59   

Canceled/expired

      (273,638 )    $ 3.80   

Exercised

      (101,580 )    $ 1.17   
  

 

 

    

 

 

  

Outstanding June 30, 2011

      4,156,524      $ 2.45   
  

 

 

    

 

 

  

Exercisable June 30, 2011

      3,775,156      $ 2.53   
  

 

 

    

 

 

  

 

Options outstanding are exercisable at prices ranging from $0.46 to $4.81 and expire over the period from 2011 to 2016 with an average life of 1.86 years. The aggregate intrinsic value of options outstanding and exercisable at June 30, 2011 was $3,257,264 and $2,825,432, respectively.

Share-Based Compensation

The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:

 

    

Three Months Ended

June 30,

     

Nine Months Ended

June 30,

  
     2011      2010      2011      2010  

Cost of revenue

    $ 5,992       $ 5,113       $ 19,144       $ 32,379   

Selling, general and administrative

      76,029         64,959         241,046         283,241   

Research and development

      14,296         6,491         46,797         34,596   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 96,317       $ 76,563       $ 306,987       $ 350,216   
  

 

 

     

 

 

     

 

 

     

 

 

  

The weighted-average estimated fair value of employee stock options granted during the nine months ended June 30, 2011 and 2010 was $1.61 and $.72, per share, respectively, using the Black-Scholes option pricing model with the following weighted-average assumptions (annualized percentages):

 

     Nine months ended June 30,
     2011    2010

Volatility

    89.0% - 93.0%    80.0% - 82.0%

Risk-free interest rate

    .99% -  1.77%    1.17% - 2.36%

Forfeiture rate

    10.0%    20.0%

Dividend yield

    0.0%    0.0%

Expected life in years

    3.4 - 4.0    3.4 - 4.9

The dividend yield of zero is based on the fact that 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 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 or if the Company updates its estimated forfeiture rate. Such amounts will be recorded as a cumulative adjustment in the period in which the estimate is changed.

Since the Company has a net operating loss carryforward as of June 30, 2011, no excess tax benefit for the tax deductions related to share-based awards was recognized for the nine months ended June 30, 2011 and 2010. As of June 30, 2011, there was approximately $500,000 of total unrecognized compensation cost related to non-vested share-based employee compensation arrangements. The cost is expected to be recognized over a weighted-average period of 1.5 years.