Share-Based Compensation

9 Months Ended

Jun. 30, 2012

Share-Based Compensation [Abstract]

SHARE-BASED COMPENSATION

12. SHARE-BASED COMPENSATION

Stock Option Plans

At June 30, 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 for 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, 2012, there were options outstanding covering 3,514,339 shares of common stock under the 2005 Equity Plan and an additional 918,977 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, 2012:

	Number of Shares			Weighted Average Exercise Price
Outstanding October 1, 2011		4,181,339		$	2.40
Granted		1,187,500		$	1.33
Canceled/expired		(1,854,500	)	$	3.69
Outstanding June 30, 2012		3,514,339		$	1.37
Exercisable June 30, 2012		2,542,197		$	1.32

Options outstanding are exercisable at prices ranging from $0.46 to $3.43 and expire over the period from 2012 to 2022 with an average remaining life of 5.11 years. The aggregate intrinsic value of options outstanding and exercisable at June 30, 2012 was $530,592 and $529,860, 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, 2012				Nine months ended June 30, 2012
	2012		2011		2012		2011
Cost of revenue	$	6,070	$	5,992	$	19,195	$	19,144
Selling, general and administrative		174,873		76,029		411,075		241,046
Research and development		18,366		14,296		46,509		46,797
Total	$	199,309	$	96,317	$	476,779	$	306,987

The weighted-average estimated fair value of employee stock options granted during the periods below were calculated using the Black-Scholes option pricing model with the following weighted-average assumptions (annualized percentages).

	Nine months ended June 30,
	2012			2011
Volatility		81.0% - 82.0	%		89.0% - 93.0	%
Risk-free interest rate		0.76% - 1.10	%		0.99% - 1.77	%
Forfeiture rate		10.0	%		10.0	%
Dividend yield		0.0	%		0.0	%
Expected life in years		5.4 - 6.4			3.4 - 4.0
Weighted average fair value of options granted during the year	$	0.88		$	1.61

The Company has never paid and does not intend 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 NOL carryforward as of June 30, 2012, no excess tax benefit for the tax deductions related to share-based awards was recognized for the nine months ended June 30, 2012 and 2011. As of June 30, 2012, there was approximately $1,300,000 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 1.8 years.