Shareholders' Equity and Related Party Transactions

9 Months Ended

Jun. 30, 2012

Shareholders' Equity and Related Party Transaction [Abstract]

Shareholders' Equity and Related Party Transactions

4.        Shareholders’ Equity and Related Party Transactions

The Company issues options to purchase common stock to its employees, certain consultants, and certain of its board members. Options are generally granted with an exercise price equal to the closing market value of a common share at the date of grant, have five- to ten-year terms and typically vest over periods ranging from immediately to three years from the date of grant. As of June 30, 2012, there were 1,035,000 authorized shares remaining for granting of future options.

A summary of stock option activity for the nine months ended June 30, 2012 is as follows:

				Weighted
		Weighted		Average
		Average		Contractual	Aggregate
		Exercise		Term	Intrinsic
	Shares	Price		(Years)	Value
Outstanding at September 30, 2011	286,000	$	1.13
Granted	85,000	$	0.19
Exercised	-	$	-
Forfeited	-	$	-
Expired	(45,000)	$	2.24
Outstanding at June 30, 2012	326,000	$	0.58	4.03	$	250.00
Options exercisable at June 30, 2012	282,250	$	0.77	3.23	$	62.50

The aggregate intrinsic value is calculated as the difference between the closing price of the Company’s common stock quoted on the OTCQX market and the exercise price of the underlying stock options for the shares subject to options that were in-the-money as of June 30, 2012.

In calculating compensation related to stock option grants, the fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions for the nine months ended June 30, 2012 and 2011:

	Fiscal 2012	Fiscal 2011
Dividend yield	None	None
Expected volatility	178.62%	128.60%
Expected annual forfeiture rate	10%	10%
Risk-free interest rate	0.50%	1.10%
Expected term (years)	4	4

           The computation of expected volatility used in the Black-Scholes option-pricing model is based on the historical volatility of the Company’s share price. The expected term is estimated based on a review of historical exercise behavior with respect to option grants.

The estimated fair value of equity-based awards, less expected forfeitures, is amortized over the award’s vesting period on a straight-line, generally over three years. Share-based compensation expense recognized in the statements of operations for the nine months ended June 30, 2012 and 2011 related to common stock option grants was $9,000 (fair value of $0.18 per share) and $22,200 (fair value of $0.52 per share), respectively. There was no share-based compensation expense recognized in the quarter ended June 30, 2012 and 2011.

During the nine months ended June 30, 2012, the Company raised $450,000 through 12 private placements to the chairman of the Company’s board of directors, and another board member, as detailed below:

	# of Shares	Amount
To the chairman of the board, October 18, 2011	87,500	$	35,000
To a board member, December 1, 2011	192,308	25,000
To the chairman of the board, December 2, 2011	230,769	30,000
To a board member, December 7 2011	138,889	25,000
To the chairman of the board, December 23, 2011	200,000	30,000
To a board member, January 10, 2012	500,000	75,000
To a board member, February 7, 2012	272,727	60,000
To the chairman of the board, February 9, 2012	272,727	60,000
To a board member, April 30, 2012	125,000	25,000
To the chairman of the board, April 30, 2012	125,000	25,000
To the chairman of the board, May 11, 2012	136,364	30,000
To a board member, May 14, 2012	136,364	30,000
	2,417,648	$	450,000

These shares have not been registered with the SEC. However, the Company’s chairman of the board and the board member received demand registration rights, subject to certain limitations, and unlimited piggyback registration rights, with respect to the shares. The Company is only obligated to use its best efforts to obtain an effective registration statement.