4. LOSS PER SHARE

We compute basic loss per share using the weighted average number of common shares outstanding. The net loss applicable to common shareholders for fiscal 2011 is the net of the net income for the year less the deemed dividend for the Series A preferred shares from the May 2011 registered direct offering described in Note 3 and less the dividends earned on the outstanding Series A preferred shares.

The Company has three categories of dilutive potential common shares: the Series A preferred shares issued in May 2011 in connection with the registered direct offering, the Warrants issued in connection with the same offering in May 2011, and shares issuable upon exercise of options. We compute diluted earnings per share using the if-converted method for preferred stock and the treasury stock method for stock options and warrants. Shares issuable upon exercise of options were not considered in computing diluted earnings per share for the fiscal years ended September 30, 2012 and 2011 because they were anti-dilutive. Warrants for 1,376,500 and 2,753,000 common shares and 936,000 and 2,753,000 common shares issuable upon conversion of preferred shares were not considered in computing diluted earnings per share for fiscal 2012 and 2011, respectively, because they were also anti-dilutive.

The following table reconciles our computation of basic net loss per share to diluted net loss per share:

	Years Ended September 30,
	2012			2011
Basic net loss per share:
Net income (loss)	$	(6,390	)	$	543
Less: Deemed dividend for Series A Preferred Shares		-			(3,277	)
Less: Preferred dividend		-			(991	)
Net loss applicable to common shareholders	$	(6,390	)	$	(3,725	)
Weighted average common shares outstanding		7,158			5,667
Basic net loss per share	$	(0.89	)	$	(0.66	)

Diluted net loss per share:
Net loss applicable to common shareholders	$	(6,390	)	$	(3,725	)
Weighted average common shares outstanding		7,158			5,667
Diluted net loss per share	$	(0.89	)	$	(0.66	)