Derivative Liabilities

9 Months Ended

Jun. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 7 — Derivative Liabilities

The May 2008 and October 2008 convertible notes, discussed above in Note 6, contained embedded adjustment features whereby the conversion price could have been adjusted if the Company had issued additional shares of common stock or securities exercisable, exchangeable, or convertible into shares of common stock at a price per share less than both the conversion price then in effect and $0.75. The embedded adjustment features were not indexed to the Company’s own stock and, therefore, were embedded derivative financial liabilities (the “Embedded Derivatives”) that required bifurcation and separate accounting. Accordingly, the Company recorded a cumulative effect adjustment to the opening balance of retained earnings on October 1, 2009. Subsequently, the Company adjusted the Embedded Derivatives to fair value at each interim period and recognized the changes in fair value as a charge or a benefit to earnings included in the Other Income (Expense) section of the Company’s Consolidated Statement of Operations.

On May 11, 2010, the May 2008 convertible note was converted into 4,375,000 shares of the Company’s common stock at a conversion price of $0.80 per share.

As of September 30, 2010, the fair value of the Embedded Derivative for the October 2008 convertible note was $1,698,000. The fair value as of September 30, 2010, was calculated using a Monte Carlo simulation model with the following assumptions:

	October 2008 Note
Risk-free interest rate:		0.14	%
Expected term:	17 days
Expected dividend yield:		0.00	%
Expected volatility:		49.30	%
Probability of triggering reset provision:		0.01	%
Existing conversion price per share	$	0.75
Company’s stock price per share	$	1.26

On October 15, 2010, the October 2008 convertible note was converted into shares of our common stock at a conversion price of $0.75 per share. The fair value of the embedded derivative on October 15, 2010, was $2,600,000, which was the intrinsic value of the conversion, based on the Company’s stock price as of the conversion date. As a result of the increase in fair value of the embedded derivative from September 30, 2010, to the date of conversion, $902,000 was recorded as an additional non-cash charge to earnings for the nine months ended June 30, 2011. As a result of the conversion, $2,600,000 was transferred from derivative liabilities into additional paid in capital.

The following represents a reconciliation of the changes in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended June 30, 2011 (dollars in thousands):

	2011
Beginning balance: Derivative liabilities	$	1,698
Total (gains) losses		902
Settlements		(2,600	)
Ending balance: Derivative liabilities	$	—