Shareholders' Equity

9 Months Ended

Jun. 30, 2011

Shareholders' Equity

Shareholders' Equity

Note 4 – Shareholders' EquityShare-based compensation expense for the three months ended June 30, 2011 and 2010 was $81,000 and$47,000, respectively, and $145,000 and $148,000 for the nine months ended June 30, 2011 and 2010,respectively, as included in the following expense categories:

	Three months ended June 30,					Nine months ended June 30,
	2011			2010		2011		2010
				(In thousands)
Sales and marketing	$	34	$	10	$	45	$	33
Engineering and product development		3		3		6		10
General and administrative		44		34		94		105
	$	81	$	47	$	145	$	148

The Company's stock compensation plans provide for the granting of restricted stock units and eitherincentive or non-qualified stock options to employees and non-employee directors. Options and restricted stock units are subject to terms and conditions determined by the Compensation and Stock Committee of the Board of Directors. Options generally vest over a three year period beginning three months from the date of grant and expire either seven or ten years from the date of grant. Restricted stock units vest annually over a three year period. Through April 25, 2011, restricted stock units and stock options were granted under the 2006 Equity Compensation and Incentive Plan and thereafter under the 2011 Equity Compensation and Incentive Plan.Stock OptionsThe Company uses the Black-Scholes option-pricing model to calculate the fair value of options. The keyassumptions for this valuation method include the expected life of the option, stock price volatility, risk-free interest rate and dividend yield. The weighted-average fair value of options granted under the stock option plans for the three months ended June 30, 2011 was $2.89. No options were granted under the stock option plans for the three months ended June 30, 2010. The weighted-average fair values of options granted under the stock option plans for the nine months ended June 30, 2011 and 2010 were $2.16 and $1.43, respectively. The total intrinsic value of options exercised during the three and nine months ended June 30, 2011 was approximately $538,000 and $663,000, respectively. No options were exercised during the three or nine months ended June 30, 2010. Total cash received from option exercises during the three and nine months ended June 30, 2011 was $298,000 and $388,000, respectively. As of June 30, 2011, there was $454,000 of total unrecognized compensation cost related to non-vested stock option arrangements, which is expected to be recognized over a weighted-average period of 2.81 years.

Many of the assumptions used in the determination of compensation expense are judgmental and highlyvolatile. The table below indicates the key assumptions used in the option valuation calculations for optionsgranted in the nine months ended June 30, 2011 and 2010:

	2011		2010
Expected life	5 years		5 years
Expected volatility	66.26 – 67.32	%	75.33	%
Weighted-average volatility	66.56	%	75.33	%
Risk free interest rate	1.49 – 2.38	%	1.28	%
Dividend yield	0.0	%	0.0	%

The expected option life is based on historical trends and data. With regard to the expected option lifeassumption, the Company considers the exercise behavior of past grants and models the pattern of aggregateexercises. Patterns are determined on specific criteria of the aggregate pool of optionees including the reaction to vesting, realizable value and short-time-to-maturity effect. The Company uses an expected stock-price volatility assumption that is based on historical volatilities of the underlying stock which are obtained from public data sources. The risk-free interest rate is equal to the historical U.S. Treasury zero-coupon bond rate with a remaining term equal to the expecte  life of the option. 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. Based on the Company's historical voluntary turnover rates, an annualized estimated forfeiture rate of 10% has been used in calculating the estimated cost. Additional expense will be recorded if the actual forfeiture rate is lower than estimated, and a recovery of prior expense will be recorded if the actual forfeiture rate is higher than estimated.The following table summarizes information about the Company's stock option plans for the nine monthsended June 30, 2011:

					Weighted-
				Weighted-	Average
	Number of			Average	Remaining		Aggregate
	Options			Exercise	Contractual		Intrinsic
	Outstanding			Price	Term		Value $(000)
Outstanding, October 1, 2010	545,010		$	2.89
Granted	241,500			3.80
Canceled	(119,600	)		3.67
Exercised	(197,248	)		1.97
Outstanding, June 30, 2011	469,662		$	3.54	4.92	$	1,052
Vested or expected to vest, June 30, 2011	447,788		$	3.53	4.69	$	1,011
Exercisable, June 30, 2011	250,923		$	3.28	3.18	$	636

Restricted Stock UnitsThe Company periodically grants awards of restricted stock units ("RSU") to each of its non-employeedirectors and some of its management team on a discretionary basis pursuant to its stock compensation plans.Each RSU entitles the holder to receive, at the end of each vesting period, a specified number of shares of theCompany's common stock. The total number of RSUs unvested at June 30, 2011 was 183,177. Each RSU vests atthe rate of 33.33% on each of the first through third anniversaries of the grant date with final vesting of the mostrecent grants scheduled to occur in June 2014. Included in the total number of RSUs unvested at June 30, 2011are 143,500 RSUs which are subject to a further vesting condition that the Company's common stock must tradeat a price greater than $10 per share on a national securities exchange for a period of twenty consecutive daysprior to the fifth year anniversary of the grant date. For such RSUs, the Company performed fair value analysisusing the Monte Carlo option-pricing model. The fair value related to the RSUs was calculated based primarily onthe average stock price of the Company's common stock on the date of the grant and is being amortized evenly ona pro-rata basis over the vesting period to general and administrative expense. The fair value of the RSUs grantedin the nine months ended June 30, 2011 and 2010, respectively, was approximately $662,000 (or $3.88 weighted-average fair value per share) and $59,000 (or $2.39 weighted-average fair value per share). The Companyrecorded compensation expense related to RSUs of approximately $43,000 and $13,000 for the three monthsended June 30, 2011 and 2010, respectively, and $72,000 and $39,000 for the nine months ended June 30, 2011and 2010, respectively. These amounts are included in the total stock-based compensation expense disclosedabove. As of June 30, 2011, there was $778,000 of total unrecognized compensation cost related to RSUs, whichis expected to be recognized over a weighted average period of 2.73 years.The following table presents RSU information for the nine months ended June 30, 2011:

	Number of
	RSUs
	Outstanding
Outstanding, October 1, 2010	45,841
Granted	170,500
Canceled	(13,504	)
Vested	(19,660	)
Outstanding, June 30, 2011	183,177