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Share-Based Compensation
 3 Months Ended
Dec. 31, 2012
Share-Based Compensation [Abstract]  
SHARE-BASED COMPENSATION

9. SHARE-BASED COMPENSATION

Stock Option Plans

At December 31, 2012, 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 December 31, 2012, there were options outstanding covering 3,353,339 shares of common stock under the 2005 Equity Plan and an additional 1,055,277 shares of common stock available for grant.

 

Stock Option Activity

The following table summarizes information about stock option activity during the three months ended December 31, 2012:

 

                 
    Number     Weighted Average  
    of Shares     Exercise Price  

Outstanding October 1, 2012

     3,463,339     $ 1.31  

Granted

     500     $ 1.00  

Forfeited/expired

     (85,800 )    $ 1.34  

Exercised

     (24,700 )    $ 0.78  
   

 

 

          

Outstanding December 31, 2012

     3,353,339     $ 1.31  
   

 

 

          

Exercisable December 31, 2012

     2,604,055     $ 1.27  
   

 

 

          

Options outstanding are exercisable at prices ranging from $0.46 to $3.13 and expire over the period from 2013 to 2022 with an average life of 4.90 years. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2012 was $453,844 and $453,717, 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  
    December 31,  
    2012     2011  

Cost of revenue

   $ 3,899     $ 6,881  

Selling, general and administrative

     189,831       118,399  

Research and development

     12,248       14,006  
   

 

 

    

 

 

  

Total

   $ 205,978     $ 139,286  
   

 

 

    

 

 

  

The employee stock option granted in the three months ended December 31, 2012 had a weighted-average estimated fair value of $.70 per share, using the Black-Scholes option pricing model with the following weighted-average assumptions (annualized percentages):

 

                 
    Three months ended  
    December 31,  
    2012     2011  

Volatility

     81.0 %      na  

Risk-free interest rate

     0.9 %      na  

Forfeiture rate

     10.0 %      na  

Dividend yield

     0.0 %      na  

Expected life in years

     6.4       na  

Weighted average fair value of options granted during the period

   $ 0.70       na  

There were no stock options granted during the three months ended December 31, 2011. 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 an NOL carryforward as of December 31, 2012, no excess tax benefit for the tax deductions related to share-based awards was recognized for the three months ended December 31, 2012 and 2011. As of December 31, 2012, there was approximately $900,000 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.