Note 19 - Stockholders' Equity

12 Months Ended

Sep. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

NOTE 19. STOCKHOLDERS’ EQUITY

Shares Authorized

The Company’s authorized number of shares of common stock is 150,000,000, and its authorized number of shares of preferred stock is 10,000,000.  Additionally, the Company has authorized 50,000 shares of Series A Preferred Stock, 34,500 shares of Series C Preferred Stock and 100,000 shares of Series D Preferred Stock.

Issuance of shares of common stock and warrants pursuant to a private placement

During fiscal 2011, the Company generated gross proceeds of $1,585,000 by issuing 3,170,000 shares of its common stock.  The Company paid $169,000 in financing costs in connection with the issuance of shares.  Additionally, the Company recognized derivative liabilities of $530,000 in connection with this transaction, which was offset against the proceeds.  Furthermore, the Company issued 3,170,000 warrants to the investors participating in this private placement and 200,000 warrants to brokers.  The warrants have an exercise price of $0.50 per share.  The warrants expire in December 2016.

Issuance of shares of common stock to satisfy certain claims

The Company issued 125,000 shares of its common stock to satisfy certain claims during fiscal 2010.  The shares were valued at $65,000 during fiscal 2010.  The fair value of the shares was based on the Company’s quoted trading price at the date of settlement.

Receipt of subscription receivable

During fiscal 2011, the Company received the remaining proceeds of its Series D preferred Stock offering which amounted to $1,334,000.

Reclassification of liability contracts to equity contracts

At March 31, 2011, we reclassified certain the Preferred Stock C and D and related warrants and certain warrants issued in connection with a private placement from liability contracts to equity contracts.

The reclassification of the Preferred Stock C and D and aforementioned warrants, previously accounted for as a liability, to equity contracts resulted in the following increases at March 31, 2011:

Preferred Stock C and D	$	6,156,000
Additional paid-in capital	$	846,000

Series A Convertible Preferred Stock

Each Series A convertible preferred stock is convertible into 80 shares of common stock ($1.25 per share of common). The holders are entitled to receive dividends on a quarterly basis at a rate of 9% per annum, per share.  Such dividends are cumulative and accumulate whether or not declared by the Company’s Board of Directors, but are payable only when and if declared by the Company’s Board of Directors.

During fiscal year 2010, the Company’s Board of Directors declared in-kind dividends in the aggregate of 3,093 shares of Series A preferred stock, in payment of approximately $386,000, for dividends accumulated through March 31 of each year.  In March 2006, the Company’s Stockholders approved an amendment to decrease the conversion price of the Series A preferred stock to $1.25 per share from $1.50 per share.  As of September 30, 2011 and 2010, the amount of accumulated dividends for the Company’s 46,050 and 42,957 issued and outstanding shares of Series A preferred stock was approximately $622,000 and $208,000, respectively.

December 2011, the Company was preparing to issue approximately 4,141,826 shares of its common stock pursuant to the conversion of 46,050 shares of its Series A Preferred Stock plus paid in kind dividend due on those shares as of the conversion date totaling approximately 5,723 shares.

Series C Convertible Preferred Stock

On July 12, 2010, the Company issued 34,167 shares of Series C preferred stock to certain investors in consideration of the conversion of $1.7 million in subordinated financing.  The Series C shares issued pursuant to this transaction are convertible into 3,416,691 shares of the Company’s common stock.

The Series C shares are convertible at the holder’s option at a rate of $0.50 per share.  The conversion rate may be reduced to the lower effective rate of any securities, with certain exceptions, issued by the Company prior to March 31, 2011. Such exceptions include issuance of shares or share equivalent pursuant to stock options, acquisitions, certain financing with a financial institution, payment in kind to vendors and payment in kind of dividends of the Series A preferred Shares.

The Series C have a liquidation preference to the holders of common stock in the event of liquidation or dissolution of the Company. The Series C has voting rights on an as converted basis.  Holders of Series C shares have certain registration rights.

Series D Convertible Preferred Stock

On September 29, 2010, the Company issued 60,000 shares of Series D shares to certain investors in consideration of $3,000,000, of which $1,334,000 was a receivable. This amount was collected in October 2010.  The Series D shares issued pursuant to this transaction are convertible into 6,000,000 shares of the Company’s common stock.

The Series D shares are convertible at the holder’s option at a rate of $0.50 per share.  The conversion rate may be reduced to the lower effective rate of any securities, with certain exceptions, issued by the Company prior to March 31, 2011. The Series D have a liquidation preference to the holders of common stock in the event of liquidation or dissolution of the Company. The Series D has voting rights on an as converted basis.  Holders of Series D shares have certain registration rights.

Stock Options

The Company’s stock option plans provide for the granting of stock options to certain key employees, directors and investment executives. Generally, options outstanding under the Company’s stock option plan are granted at prices equal to or above the market value of the stock on the date of grant, vest either immediately or ratably over up to five years, and expire five years subsequent to award.

The Company granted 340,000 options during fiscal 2010.

The fair value of such options is based on the Black Scholes Model using the following assumptions:

Exercise price:	$0.69-0.75
Market price at date of grant:	$0.69-0.75
Volatility:	71.3%
Expected dividend rate:	0%
Expected terms:	5 years
Risk-free interest rate:	2.55%

The Company did not grant any options during fiscal 2011.

The following activity occurred under our plan:

						Weighted
						Average
				Weighted		Remaining		Aggregate
				Average Price		Contractual		Intrinsic
	Options			Per Share		Term		Value
Balance, September 30, 2009		5,912,165		$	1.55				-
Granted		340,000			0.70
Exercised		-			-
Forfeitures		(1,067,478	)		1.36
Outstanding at September 30, 2010		5,184,687		$	1.53		3.20	$	2,500
Granted		-			-
Exercised		-			-
Forfeitures		(1,374,416	)		-
Outstanding at September 30, 2011		3,810,271		$	1.66		2.36	$	-
Exercisable at September 30, 2011		3,745,746			1.66		2.37	$	-

	2011		2010
Weighted-average grant-date fair value of options granted		N/A	$	0.50
Fair value of options recognized as expense:	$	266,000	$	532,000

The total compensation cost related to non-vested options not yet recognized amounted to approximately $24,000 at September 30, 2011 and the Company expects that it will be recognized over the following weighted-average period of 15 months.

Warrants

In February 2007, as further discussed in Note 14, the Company completed a financing transaction that included five-year warrants to purchase 250,000 shares of the Company’s common stock at $1.40 per share. In February 2009, in exchange for forbearance of the amounts due under the terms of notes issued in this financing, 62,500 of these warrants were re-priced to an exercise price of $0.75 and 125,000 of these warrants held by Chris Dewey, as officer of the Company, were re-priced to an exercise price of $1.00.   In May 2009, in consideration of an additional forbearance of the amounts due under his note and a reduction in the interest rate of such note, Mr. Dewey’s warrants were re-priced to an exercise price of $0.75.  In September 2009, in consideration for prior forbearances, Mr. Dewey and another investor on the February 2007 financing were issued 100,000 and 12,500 warrants, respectively, with an exercise price of $0.75.  In June 2010, in consideration for an additional forbearance of the amounts due under his note, Mr. Dewey was issued 225,000 warrants with an exercise price of $0.75.

During June 2010, St. Cloud agreed to waive certain covenants associated with its prior financings in consideration of the issuance of warrants to purchase an aggregate 500,000 shares of common stock at an exercise price of $0.50 per share.  The warrants expire in June 2015.  In the event the Company does not prepay the notes, the lender is only entitled to exercise 250,000 warrants.

In connection with the issuance of the Series C Shares, the Company also issued warrants to purchase 3,416,692 shares of common stock at an exercise price of $0.50 per share.  The exercise price may be reduced to the lower effective price per share of any securities, with certain exceptions, issued by the Company prior to March 31, 2011.  Such exceptions include issuance of shares or share equivalent pursuant to stock options, acquisitions, certain financing with a financial institution, payment in kind to vendors and payment in kind of dividends of the Series A preferred Shares. The warrants vest at a rate of 33 1/3% on July 12, 2010 and 33 1/3% annually thereafter.  The warrants expire 5 years from the date of vesting.

In connection with the issuance of the Series D Shares, the Company also issued warrants to purchase 6,000,000 shares of common stock at an exercise price of $0.50 per share.  The exercise price may be reduced to the lower effective price per share of any securities, with certain exceptions, issued by the Company prior to July 2011.  Such exceptions include issuance of shares or share equivalent pursuant to stock options, acquisitions, certain financing with a financial institution, payment in kind to vendors and payment in kind of dividends of the Series A preferred Shares. The warrants vest at a rate of 33 1/3% in September 2010 and 33 1/3% annually thereafter.  The warrants expire 5 years from the date of vesting.

Holders of the warrants issuant pursuant to Series D have a right to net settle their warrants in cash if there aren’t enough shares of common stock authorized to cover the issuance of shares pursuant to the exercise of such warrants.  The net settlement effective price per warrant is the difference between the fair value as defined and the effective exercise price.

During September 2010, the Company issued warrants to purchase an aggregate of 250,000 shares of common stock at an exercise price of $0.50.  The warrants vest at a rate of 33 1/3% in September 2010 and 33 1/3% annually thereafter.  The warrants expire 5 years from the date of vesting. The Company issued the warrants to the holders of Series C shares in consideration of their approval to the Series D transaction.

During fiscal 2011, the Company issued 3,170,000 warrants to the investors participating in this private placement and 200,000 warrants to brokers.  The warrants have an exercise price of $0.50 per share.  The warrants expire in December 2016.

The following tables summarize information about warrants outstanding at September 30, 2011.

	Shares			Weighted Average Exercise Price		Weighted Average Contractual Term (Yrs)
Outstanding at October 1, 2009		2,090,474		$	1.67
Granted		10,391,692			0.75
Exercised		-			-
Expired		(378,224	)		16.07
Outstanding at September 30, 2010		12,103,942		$	1.27		4.47
Granted		3,370,000		$	0.50
Exercised		-			-
Expired		(506,001	)		1.46
Outstanding at September 30, 2011		14,967,941		$	1.00		3.78
Exercisable at September 30, 2011		11,495,711		$	1.01		3.74

As of September 30, 2011, the aggregate intrinsic value of the Company’s outstanding and exercisable warrants was $0.

Non-controlling interest

In July 2010, the Company sold a 24.9% interest in one of its subsidiary, EquityStation, Inc.  The Company generated $800,000 from such sale. Such net proceeds of $748,000 have been recorded as a contribution to equity.

During fiscal 2011, the non-controlling stockholder contributed $31,000 to the capital of EquityStation, Inc.