Equity

12 Months Ended

Sep. 30, 2011

Equity [Abstract]

Equity [Text Block]

Equity

We provide long-term incentives to eligible officers, directors, and employees in the form of stock-based awards.  We maintain two stock award plans: the 2000 Stock Option Plan, or the 2000 Plan, and the 2010 Equity Incentive Plan, or the 2010 Equity Plan and, together with the 2000 Plan, the Stock Plans. The 2000 Plan expired in February 2010 and no additional shares are available for grant under this plan. We issue new shares of common stock to satisfy awards issued under our Stock Plans.

On June 14, 2011, our shareholders approved an increase in the number of stock-based awards that may be granted under the 2010 Equity Plan from 4,000,000 to 7,000,000 stock-based awards.

Stock Options

Most of our stock options vest and become exercisable over four to five years and have a contractual life of ten years. Certain stock options awarded are intended to qualify as incentive stock options pursuant to Section 422A of the Internal Revenue Code. The following tables summarize the activity related to stock options under the Stock Plans:

Stock Option Activity	Number of Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)
Outstanding as of September 30, 2008	8,929,453		$6.57
Granted	3,700,439		$1.25
Exercised	(10,675	)	$3.02
Forfeited	(1,243,825	)	$6.98
Cancelled	(587,218	)	$4.64
Outstanding as of September 30, 2009	10,788,174		$4.85
Granted	76,500		$1.07
Exercised	(1,500	)	$0.54
Forfeited	(856,265	)	$3.36
Cancelled	(1,284,784	)	$6.51
Outstanding as of September 30, 2010	8,722,125		$4.70
Granted	1,021,500		$1.50
Exercised	(231,535	)	$1.38
Forfeited	(246,202	)	$3.00
Cancelled	(229,100	)	$5.83
Outstanding as of September 30, 2011	9,036,788		$4.44	6.43
Exercisable as of September 30, 2011	5,963,545		$5.30	5.62
Vested and expected to vest as of September 30, 2011	8,618,881		$4.55	6.33

As of September 30, 2011, there was approximately $4.2 million of unrecognized stock-based compensation expense, net of estimated annual forfeitures, related to non-vested stock options granted under the Stock Plans which is expected to be recognized over an estimated weighted average life of 2.2 years.

Intrinsic value for stock options represents the “in-the-money” portion or the positive variance between a stock option's exercise price and the underlying stock price. The total intrinsic value related to stock options exercised during the fiscal years ended September 30, 2011, 2010, and 2009 was approximately $218,000, $500, and $11,000, respectively. The intrinsic value related to fully vested and expected to vest stock options as of September 30, 2011 and 2010 was approximately $25,000 and $2,000, respectively. The intrinsic value related to exercisable stock options as of September 30, 2011 and 2010 was approximately $5,000 and $1,000, respectively.

Restricted Stock

Restricted stock awards (RSAs) and restricted stock units (RSUs) granted under the 2010 Equity Plan typically vest over three years and are subject to forfeiture if employment terminates prior to the lapse of the restrictions. RSAs are considered issued and outstanding shares on the grant date and have the same dividend and voting rights as other common stock. RSUs are not considered issued or outstanding common stock. There were no vested RSAs or RSUs as of September 30, 2011.

The following table summarizes the activity related to RSAs and RSUs under the 2010 Equity Plan:

Restricted Stock Awards Activity	Restricted Stock Awards			Restricted Stock Units
	Number of Shares		Weighted Average Grant Date Fair Value	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2010	—		—	—		—
Granted	1,715,900		$1.45	1,241,940		$1.55
Vested	—		—	—		—
Cancelled	(73,300	)	$1.42	(9,750	)	$1.55
Non-vested as of September 30, 2011	1,642,600		$1.45	1,232,190		$1.55

Restricted stock awards: As of September 30, 2011, there was approximately $1.5 million of remaining unamortized stock-based compensation expense, net of estimated forfeitures, associated with RSAs, which will be expensed over a weighted average remaining service period of approximately 2.3 years.

Restricted stock units: As of September 30, 2011, there was approximately $1.6 million of remaining unamortized stock-based compensation expense, net of estimated forfeitures, associated with RSUs, which will be expensed over a weighted average remaining service period of approximately 2.9 years. Of the 1.3 million outstanding non-vested RSUs, approximately 1.1 million RSUs are expected to vest and have an aggregate intrinsic value of approximately $1.1 million and a weighted average remaining contractual term of 1.8 years. The 1.3 million outstanding non-vested RSUs have an aggregate intrinsic value of approximately $1.3 million and a weighted average remaining contractual term of 1.9 years.

Surrender of Stock Options

On November 20, 2009, the Company’s Chief Financial Officer at the time, voluntarily surrendered stock options exercisable into 475,000 shares of common stock. These stock options had an exercise price of $5.57 and were granted on August 18, 2008. The Chief Financial Officer received no consideration in exchange for the surrender of these stock options. The surrender of his non-vested stock options resulted in an immediate non-cash charge of $1.3 million, which was recorded as selling, general, and administrative expense during the three months ended December 31, 2009. The expense was due to the acceleration of all unrecognized stock-based compensation expense associated with that specific stock option grant.

401(k) Plan

We have a savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under this savings plan, participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. All employer contributions are made in common stock. For the fiscal years ended September 30, 2011, 2010, and 2009, we contributed approximately $0.9 million, $0.9 million, and $0.6 million, respectively, in common stock to the savings plan.

Valuation Assumptions

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach using the following weighted-average assumptions. The option-pricing model requires the input of highly subjective assumptions, including the option's expected life and the price volatility of the underlying stock. The weighted-average grant date fair value of stock options granted during the fiscal years ended September 30, 2011, 2010, and 2009 was $1.11, $0.77, and $1.25, respectively.

Black-Scholes Weighted Average Assumptions	For the Fiscal Years Ended September 30,
	2011		2010		2009
Expected dividend yield	—	%	—	%	—	%
Expected stock price volatility	99.4	%	97.1	%	97.9	%
Risk-free interest rate	1.4	%	2.4	%	2.4	%
Expected term (in years)	4.9		4.6		4.5

Expected Dividend Yield: The Black-Scholes valuation model calls for a single expected dividend yield as an input. We have not issued any dividends.

Expected Stock Price Volatility: The fair values of stock-based payments were valued using the Black-Scholes valuation

method with a volatility factor based on our historical common stock prices.

Risk-Free Interest Rate: The risk-free interest rate used in the Black-Scholes valuation method was based on the implied yield that was currently available on U.S. Treasury zero-coupon notes with an equivalent remaining term. Where the expected term of stock-based awards do not correspond with the terms for which interest rates are quoted, we performed a straight-line interpolation to determine the rate from the available maturities.

Expected Term: Expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

Estimated Pre-vesting Forfeitures: We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. If we use different assumptions for estimating stock-based compensation expense in future periods or if actual forfeitures differ materially from our estimated forfeitures, the change in our non-cash stock-based compensation expense could adversely affect our results of operations.

Stock-based compensation

The effect of recording stock-based compensation expense was as follows:

Stock-based Compensation Expense (in thousands, except per share data)	For the Fiscal Years Ended September 30,
	2011			2010			2009
Stock-based compensation expense by award type:
Employee stock options	$	5,147		$	8,220		$	6,309
Restricted stock awards and units	557			—			—
Employee stock purchase plan	600			551			708
401(k) match in common stock	935			864			614
Outside director fees	189			225			423
Total stock-based compensation expense	$	7,428		$	9,860		$	8,054
Stock-based compensation expense by expense category:
Cost of revenue	$	1,412		$	2,086		$	2,001
Selling, general, and administrative	3,927			5,874			4,450
Research and development	2,089			1,900			1,603
Total stock-based compensation expense	$	7,428		$	9,860		$	8,054
Net effect on net loss per basic and diluted share	$	(0.08	)	$	(0.12	)	$	(0.10	)

For the fiscal year ended September 30, 2011, total stock-based compensation expense does not agree with the amount listed on our statement of shareholders' equity due to a timing difference, expense accrual versus issuance of common stock, related to the payment of outside director fees and issuance of common stock related to our 401(k) company match.

Capital Stock

Our authorized capital stock consists of 200 million shares of common stock, no par value, and 5,882,352 shares of preferred stock, $0.0001 par value. As of September 30, 2011, we had 94.1 million shares of common stock issued and 93.9 million shares of common stock outstanding. There were no shares of preferred stock issued or outstanding as of September 30, 2011.

Warrants

As of September 30, 2011 and 2010, warrants representing 3,000,003 shares of our common stock were outstanding.

On February 20, 2008, in conjunction with a private placement transaction, we issued warrants representing the right to purchase up to an aggregate of 1,400,003 shares of common stock (2008 Warrants). On October 1, 2009, we entered into an equity line financing facility with Commerce Court Small Cap Value Fund, Ltd. wherein we issued three warrants representing the right to purchase up to an aggregate of 1,600,000 shares of common stock, (2009 Warrants, and together with the 2008 Warrants, the 2008 and 2009 Warrants).

Prior to January 1, 2011, the 2008 Warrants were classified as equity instruments. During the quarter ended March 31, 2011, we determined that the 2008 Warrants should have been accounted for as a liability since these warrants met the definition of a derivative instrument and did not qualify for equity classification. The valuation of the warrants was based on a Monte Carlo option pricing model which resulted in a fair value of approximately $8.2 million, $1.8 million, $0.4 million, $0.1 million, and $0.2 million as of February 20, 2008, September 30, 2008, September 30, 2009, September 30, 2010 and December 31, 2010, respectively. During the three months ended March 31, 2011, we adjusted common stock and accumulated deficit, both equity-related accounts, by $8,218,000 and $8,022,000, respectively, and recorded the liability related to the fair value of the warrants as of January 1, 2011 of $196,000 to correct the initial accounting treatment of the warrants from equity to liability accounting as an out-of-period adjustment. We also reclassified the 2008 and 2009 Warrants from a non-current liability to a current liability during the quarter ended March 31, 2011 since these warrant agreements include a fundamental transaction clause whereby, in the event that another person becomes the beneficial owner of 50% of the outstanding shares of the Company's common stock, and if other conditions are met, we may be required to purchase the warrants from the holders by paying cash in an amount equal to the Black-Scholes value of the remaining unexercised portion of the warrants on the date of such fundamental transaction. See Footnote 4 - Fair Value Accounting for additional information related to the valuation of our warrants.

Private Placement

On May 31, 2011, we completed an equity private placement transaction with Shanghai Di Feng Investment Co. Ltd. pursuant to which we sold 4,407,603 shares of our common stock for approximately $9.7 million. The common stock was offered solely to "accredited investors" as defined in Regulation D promulgated under the Securities Act of 1933, as amended, the Act, in reliance on the exemptions from registration afforded by Section 4(2) of the Act. In connection with this transaction, we also entered into a registration rights agreement pursuant to which we agreed to register the shares issued with the SEC on a Form S-1 registration statement within 60 days of the closing date of the transaction and to use commercially reasonable efforts to have the registration statement declared effective within 120 days of the closing date. We filed the registration statement on Form S-1 with the SEC on July 25, 2011 and we received a Notice of Effectiveness from the SEC on August 15, 2011. We used the proceeds from this private placement for general corporate purposes.

Employee Stock Purchase Plan

We maintain an Employee Stock Purchase Plan (ESPP) that provides employees an opportunity to purchase common stock through payroll deductions. The ESPP is a 6-month duration plan and the purchase price is set at 85% of the average high and low market price of our common stock on either the first or last day of the participation period, whichever is lower, and contributions are limited to the lower of 10% of an employee's compensation or $25,000. In November 2010, we changed the ESPP beginning participation dates from January 1st to February 25th and from July 1st to August 26th. In June 2011, our shareholders approved an increase in the number of shares of common stock that may be granted under the ESPP from 4,500,000 shares to 7,000,000 shares. We issue new shares of common stock to satisfy the issuance of shares under this stock-based compensation plan. Common stock issued under the ESPP during the fiscal years ended September 30, 2011, 2010, and 2009 totaled 1,437,689, 1,202,181, and 994,742 shares, respectively. The total amount of common stock issued under the ESPP totaled 4,879,240 shares.

Officer and Director Share Purchase Plan

On January 21, 2011, the Compensation Committee of the Board of Directors approved an Officer and Director Share Purchase Plan, or ODPP, which allows executive officers and directors to purchase shares of our common stock at fair market value in lieu of salary or, in the case of directors, director fees. Eligible individuals may voluntarily participate in the ODPP by authorizing payroll deductions or, in the case of directors, deductions from director fees for the purpose of purchasing common stock. Elections to participate in the ODPP may only be made during open trading windows under our insider trading policy when the participant does not otherwise possess material non-public information concerning the Company. The Board of Directors has authorized 500,000 shares to be made available for purchase by officers and directors under the ODPP. As of September 30, 2011, 37,062 shares of common stock had been purchased under the ODPP.

Future Issuances

 As of September 30, 2011, we had common stock reserved for the following future issuances:

Future Issuances	Number of Common Stock Shares Available for Future Issuances
For future exercise of outstanding stock options	9,036,788
For future issuances to employees under the ESPP	2,120,760
For future stock-based awards under the 2010 Equity Plan	3,161,710
For future exercise of warrants	3,000,003
For future issuance under the ODPP	462,938
Total reserved	17,782,199

Subsequent event: On December 6, 2011, 2,919,465 restricted stock units were granted to executive management and certain employees under the 2010 Equity Plan with a grant date fair value of $0.96 per unit