SHARE-BASED COMPENSATION

6 Months Ended

Mar. 31, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

SHARE-BASED COMPENSATION

NOTE 6    SHARE-BASED COMPENSATION

2011 Long Term Incentive Plan

In March 2011, shareholders of the Company approved the 2011 Long Term Incentive Plan (the “2011 Plan”), which authorizes 850,000 shares of common stock for grants of various types of equity awards to officers, directors, employees, consultants, and independent contractors. Under the 2011 Plan, as of March 31, 2013, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) has approved awards of stock options to purchase an aggregate of 1,315,000 shares of common stock to certain of the Company’s executive officers and employees (1,020,000 shares), a consultant (160,000 shares), non-employee directors (130,000 shares), and to a non-employee executive officer (5,000 shares).  Of these awards, as of March 31, 2013, 530,500 shares were forfeited and reverted to, and are eligible for re-grant under, the 2011 Plan.  The total shares of common stock available for grants of equity awards under the 2011 Plan was 65,500 as of March 31, 2013. The prices at which equity awards may be granted and the exercise prices of stock options granted may not be less than the fair market value of the common stock as quoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee administers the 2011 Plan.  Options generally expire ten years after the date of grant and vest one year from the date of grant for non-employee directors, and, in the case of initial grants to officers and employees, vest over five years with 50%, 25% and 25% vesting on the third, fourth, and fifth anniversary of the grant date, respectively. Options granted under a consulting agreement in November 2011 expire three years after the grant date and vested equally over the term of the consulting agreement, which concluded February 29, 2012.

2007 Equity Incentive Plan

The 2007 Equity Incentive Plan (the “2007 Plan”), which was approved by shareholders of the Company in May 2007, and, as amended in February 2010, authorizes an aggregate of 800,000 shares of common stock for grants of restricted common stock and stock options to officers, employees, and non-employee directors of the Company. Under the 2007 Plan, the Compensation Committee approved awards of restricted common stock and stock options of 977,375, in the aggregate, to certain officers, employees and non-employee directors. Of these awards, as of March 31, 2013, 278,366 shares were forfeited and reverted to, and are eligible for re-grant under, the 2007 Plan.  The total shares of common stock available for grants of equity awards under the 2007 Plan was 100,991 as of March 31, 2013. The prices at which restricted common stock may be granted and the exercise price of stock options granted may not be less than the fair market value of the common stock as quoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee administers the 2007 Plan.  Options generally expire ten years after the date of grant, and in the case of non-employee directors, vest on the first anniversary of the date of grant. In the case of officers and employees, options either vest in equal amounts over three to five years or vest over five years with 50%, 25% and 25% vesting on the third, fourth, and fifth anniversary of the grant date, respectively. Restricted stock grants generally vest in equal proportions over three years.

1996 Stock Incentive Plan

The Company’s 1996 Stock Incentive Plan (the “1996 Plan”) expired in accordance with its terms in November 2006.  The exercise price of incentive options granted under the 1996 Plan to officers, employees, and non-employee directors of the Company was required by 1996 Plan provisions to be equal at least to the fair market value of the common stock at the date of grant. In general, options under this plan expire ten years after the date of grant and generally vest in equal proportions over three years.  Unexercised options granted  prior to 1996 Plan expiration remain outstanding until the earlier of exercise or option expiration. Under the 1996 Plan 30,000 fully vested common stock options are the only awards that remain outstanding and unexercised, all at exercise prices higher than the fair market value of the common stock at March 31, 2013.

Under the 2011 and 2007 Plans, the Compensation Committee has approved awards of stock options to purchase an aggregate of 1,737,500 shares of common stock to the Company’s current and certain former non-employee directors, to certain key employees, to current and certain former Company officers, and to a consultant, of which awards covering 255,000 shares from the 2007 Plan and 530,500 shares from the 2011 Plan of common stock were forfeited, with such shares reverting to the respective plans and eligible for grant. The exercise prices of the awards granted was, in each case equal, to the closing market value of the Company’s common stock on the Nasdaq Stock Market on the various grant dates.

The Company recognized approximately $92,000 and $107,000 of compensation expense in continuing operations for stock option awards in its consolidated statements of operations and comprehensive income (loss) for the three-month periods ended March 31, 2013 and 2012, respectively; and $128,000 and $251,000 for the six-month periods ended March 31, 2013 and 2012, respectively.

As of March 31, 2013, there was approximately $240,000 of total unrecognized compensation cost related to 481,500 shares of unvested stock option awards granted under the 2007 and 2011 Plans, which is expected to be recognized over the remainder of the weighted average vesting period (extending to August 2016).

The following table summarizes stock option activity under the 2011 Plan and 2007 Plan, from September 30, 2012 through March 31, 2013 (there was no activity during such period with respect to the 1996 Plan grants):

	Shares	Weighted  Average Exercise  Price	Weighted  Average Remaining  Contractual  Term (Years)	Aggregate  Intrinsic  Value
Outstanding at September 30, 2012	1,142,000	$3.31	4.3	$ --
Granted..........................................................................	120,000	1.14	9.1	--
Exercised.......................................................................	--	--	--	--
Forfeited.......................................................................	(365,000)	3.43	--	--
Expired..........................................................................	--	--	--	--
Outstanding at March 31, 2013	897,000	$2.98	6.3	$ --
Options expected to vest at March 31, 2013.................	435,150	$2.90	8.7	--
Options vested and exercisable at March 31, 2013....	414,700	$3.04	4.6	--

During the six-month period ended March 31, 2013, the Company granted 120,000 stock options at a weighted average grant date fair value of $0.61. During the six-month period ended March 31, 2012, the Company granted 280,000 stock options at a weighted average grant date fair value of $0.91.

The fair value of each stock option on the date of grant was estimated using the Black-Scholes option-pricing formula applying the following assumptions for each respective period:

	For the Six-Month Periods Ended March 31,
	2013	2012
Expected term (in years)	5.0	3.0 to 5.0
Risk-free interest rate.........	0.6%-0.7%	0.04% to 0.83%
Expected volatility..............	70.0%-70.4%	63% to 69%
Expected dividend yield.....	0%	0%
Forfeiture rate......................	5%	9.1%

The expected term represents the period over which the stock option awards are expected to be outstanding. The Company based the risk-free interest rate used in its assumptions on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the award’s expected term. The volatility factor used in the Company’s assumptions is based on the historical price of its stock over the most recent period commensurate with the expected term of the award. The Company historically has not paid any dividends on its common stock and had no intention to do so on the date the share-based awards were granted. Accordingly, the Company used a dividend yield of zero in its assumptions. The Company estimates the expected term, volatility and forfeitures of share-based awards based upon historical data. The Company adjusted its estimated forfeiture rate effective October 1, 2011 and recognized a recovery of approximately $46,000 during the three-month period ended December 31, 2011.

Restricted Stock Awards

Under the 2011 Plan and 2007 Plan, the Compensation Committee has approved and granted awards of 554,875 shares of restricted stock, in the aggregate, to certain key employees. Of these awards, 160,134 have vested and 23,366 shares of restricted stock were forfeited and reverted to, and are eligible for re-grant under, the 2007 Plan. Vesting of restricted stock awards is generally subject to a continued service condition with one-third of the awards vesting each year on the three successive anniversary dates of the grant date, typically commencing on the first such anniversary date.  The fair value of the awards granted was equal to the closing market value of the Company’s common stock as quoted on the Nasdaq Stock Market on the grant date. During the three-month periods ended March 31, 2013 and 2012, the Company recognized approximately $59,000 and ($1,000), respectively, of compensation in its consolidated statements of operations and comprehensive income (loss) related to restricted stock awards; and approximately $98,000 and $3,000 for the six-month periods ended March 31, 2013 and 2012, respectively.

The following table summarizes restricted stock activity under the 2011 Plan and 2007 Plan from September 30, 2012, through March 31, 2013.

	Shares	Weighted Average Grant Date Fair Value
Non-vested balance at September 30, 2012.....................	7,500	$2.02
Changes during the period:
Shares granted...............................................................	371,375	1.16
Shares vested................................................................	(7,500)	2.02
Shares forfeited.............................................................	--	--
Non-vested balance at March 31, 2013............................	371,375	$1.16

                As of March 31, 2013, there was approximately $289,000 of total unrecognized compensation cost related to 371,375 shares of unvested restricted stock awards (reflected in the table above) granted under the 2011 Plan and 2007 Plan. That cost is expected to be recognized over the remainder of the requisite service (vesting) periods. The total grant date fair value of restricted stock that vested during the six-month period ended March 31, 2013 was approximately $15,000.

Warrants

    As of March 31, 2013, warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.75 issued in fiscal year ended 1999 were outstanding. By their terms these warrants expire 90 days after a registration statement registering common stock (other than pursuant to employee benefit plans) is declared effective by the Securities and Exchange Commission. As of March 31, 2013, no such registration statement has been filed with the Securities and Exchange Commission.