Share-Based Compensation

12 Months Ended

Sep. 30, 2012

Share-Based Compensation [Abstract]

SHARE-BASED COMPENSATION

13. SHARE-BASED COMPENSATION

Stock Option Plans

At September 30, 2012, the Company had one equity incentive plan. The 2005 Equity Incentive Plan (“2005 Equity Plan”), as amended, authorizes for issuance as stock options, stock appreciation rights, or stock awards for an aggregate of 3,250,000 shares of common stock to employees, directors or consultants. The total 2005 Equity Plan reserve includes these shares and shares reserved under other plans prior to the 2005 Equity Plan, allowing for the issuance of up to 4,999,564 shares. At September 30, 2012, there were options outstanding covering 3,463,339 shares of common stock under the 2005 Equity Plan and 969,977 shares of common stock available for grant for a total of 4,433,316 currently available under the 2005 Equity Plan.

Share-Based Compensation

The Company’s employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.

The Company recorded $684,451 and $422,643 of stock compensation expense for the years ended September 30, 2012 and 2011, respectively. The weighted average estimated fair value of employee stock options granted during the year ended September 30, 2012 and 2011 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

	2012	2011
Volatility	81.0% - 82.0%	89.0% - 93.0%
Risk-free interest rate	0.8% - 1.1%	1.0% - 1.8%
Forfeiture rate	10.0%	10.0%
Dividend yield	0.0%	0.0%
Expected life in years	5.4 - 6.4	3.4 - 6.5
Weighted average fair value of options granted during the year	$0.88	$1.60

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 contractual term of the options was five years until it was changed to ten years in August 2011. 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. Such revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed.

As of September 30, 2012, there was approximately $1,100,000 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 1.7 years. To the extent the forfeiture rate is different from what the Company anticipated, stock-based compensation related to these awards will be different from the Company’s expectations.

Stock Option Summary Information

A summary of activity for the Company’s stock option plans, as well as options granted outside such plans as of September 30, 2012 and 2011, is presented below:

	Number of Shares			Weighted Average Exercise Price
Fiscal 2011:
Outstanding October 1, 2010		4,408,742		$	2.50
Granted		378,000		$	2.39
Forfeited/expired		(473,638	)	$	3.60
Exercised		(131,765	)	$	1.10
Outstanding September 30, 2011		4,181,339		$	2.40
Exercisable September 30, 2011		3,705,939		$	2.47
Fiscal 2012:
Outstanding October 1, 2011		4,181,339		$	2.40
Granted		1,237,500		$	1.33
Forfeited/expired		(1,955,500	)	$	3.67
Outstanding September 30, 2012		3,463,339		$	1.31
Exercisable September 30, 2012		2,575,857		$	1.25
Weighted average fair value of options granted during the year				$	0.88

The aggregate intrinsic value for options outstanding and options exercisable at September 30, 2012 was $862,501 and $811,059, respectively. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last day of trading during the year, which was $1.39 per share, and the exercise price multiplied by the number of applicable options. There were no stock options exercised in the year ended September 30, 2012. The total intrinsic value of stock options exercised during the year ended September 30, 2011 was $182,191 and cash received from these exercises was $145,450. The Company did not recognize any tax benefit for exercised stock options in the year ended September 30, 2012. The Company recognized the $182,191 as a tax benefit in the income tax provision for the year ended September 30, 2011.

The following table summarizes information about stock options outstanding at September 30, 2012:

Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$0.46-$1.00		746,482		1.19	$	0.48		746,169	$	0.48
$1.01-$1.50		1,916,157		7.10	$	1.29		1,170,032	$	1.28
$1.51-$2.00		408,700		0.89	$	1.85		376,106	$	1.87
$2.01-$2.50		276,500		8.21	$	2.26		186,103	$	2.25
$2.51-$3.13		115,500		3.43	$	2.65		97,447	$	2.64
$0.46-$3.13		3,463,339		5.06	$	1.31		2,575,857	$	1.25

The Company recorded non-cash share-based compensation expense for employees, directors and consultants of $684,451 and $422,643, respectively, for the fiscal years ended September 30, 2012 and 2011. The amounts of share-based compensation expense are classified in the consolidated statements of operations as follows:

Years Ended September 30,	2012		2011
Cost of revenue	$	21,662	$	25,928
Selling, general and administrative		603,989		335,796
Research and development		58,800		60,919
Total	$	684,451	$	422,643