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Capital Stock

9 Months Ended

Jun. 30, 2011

4. Capital Stock

At June 30, 2011, the Company’s Articles of Incorporation provide the Company authority to issue 75,000,000 shares of Common Stock and 10,000,000 shares of blank check Preferred Stock.

Share-based compensation

The Company accounts for share-based compensation under the provisions of ASC Topic 505-50 and ASC Topic 718, using the modified prospective approach and accounts for share-based compensation applying the fair value method for expensing stock options and non-vested stock awards.

Total share-based compensation expense was approximately $82,000 and $147,000 for the three months ended June 30, 2011 and 2010, respectively. The excess (shortfall in) tax benefits recognized as a credit (charge) to additional paid-in capital in the Statement of Shareholders’ Equity related to share-based compensation arrangements was $2,000 and $8,000 for the three months ended June 30, 2011 and 2010, respectively.

Total share-based compensation expense was approximately $258,000 and $433,000 for the nine months ended June 30, 2011 and 2010, respectively. The excess (shortfall in) tax benefits recognized as a credit (charge) to additional paid-in capital in the Statement of Shareholders’ Equity related to share-based compensation arrangements was $5,000 for the nine months ended both June 30, 2011 and 2010. Compensation expense related to share-based awards is recorded in general and administrative expense.

The Company maintains the 1998 Stock Option Plan (the “1998 Plan”), the 2003 Restricted Stock Plan (the “Restricted Plan”) and the 2009 Stock-Based Incentive Compensation Plan (the “2009 Plan”) as approved by the Company’s shareholders. The 1998 Plan expired November 13, 2008.

1998 Stock Option Plan

The 1998 Plan allowed the granting of incentive and nonqualified stock options to employees, officers, directors, and independent contractors and consultants. No stock options were granted to independent contractors or consultants under this Plan. Total compensation expense associated with awards under the 1998 plan was $26,000 and $81,000 for the three months ended June 30, 2011 and 2010, respectively. Total compensation expense associated with awards under the 1998 plan was $92,000 and $268,000 for the nine months ended June 30, 2011 and 2010, respectively.

Incentive stock options granted under the 1998 Plan have exercise prices that must be at least equal to the fair value of the Common Stock on the grant date. Nonqualified stock options granted under the 1998 Plan have exercise prices that are less than, equal to or greater than the fair value of the Common Stock on the date of grant. The Company had reserved 3,389,000 shares of Common Stock for awards under the 1998 Plan. On November 13, 2008, the 1998 Plan expired and no additional shares were granted under the Plan after that date.

Restricted Plan

Total compensation expense under the Restricted Plan was $0 and $50,000 for the three months ended June 30, 2011 and 2010, respectively. Total compensation expense associated with the Restricted Plan was $6,000 and $150,000 for the nine months ended June 30, 2011 and 2010, respectively. The expense relates to shares that are issued to non-employee members of the Board of Directors on a quarterly basis as compensation. As of June 30, 2011, no shares remain available for grants of restricted stock under the Restricted Plan; however, the Company continues to make such grants to non-employee members of the Board of Directors under the 2009 Plan.

2009 Stock-Based Incentive Compensation Plan

The 2009 Plan authorizes the grant of Stock Appreciation Rights (“SARs”), Restricted Stock, Options and other equity-based awards under the 2009 Plan (collectively referred to as “Awards”). Options granted under the 2009 Plan may be either “incentive stock options” as defined in section 422 of the Internal Revenue Code (the “Code”), or nonqualified stock options, as determined by the Compensation Committee of the Company’s Board of Directors (the “Committee”).

Subject to an adjustment that may be necessary in conjunction with a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution or other similar corporate transaction or event, the maximum number of shares of Common Stock available for Awards under the 2009 Plan is 1,200,000, all of which may be issued pursuant to Awards of incentive stock options. In addition, the Plan provides that no more than 300,000 shares may be awarded to any employee as a performance-based Award under Section 162(m) of the Code. Total shares of Common Stock available for Awards under the Plan are 1,119,746 and 1,150,000 as of June 30, 2011 and 2010, respectively.

If any Award is forfeited or if any Option terminates, expires or lapses without being exercised, the shares of Common Stock subject to such Award will again be available for future grant. Any shares tendered by a participant in payment of the exercise price of an Option or the tax liability with respect to an Award (including, in any case, shares withheld from any such Award) will not be available for future grant under the 2009 Plan. If there is any change in the Company’s corporate capitalization, the Compensation Committee will adjust proportionately and equitably the number and kind of shares of Common Stock which may be issued in connection with future Awards, the number and kind of shares of Common Stock covered by Awards then outstanding under the 2009 Plan, the number and type of shares of Common Stock available under the 2009 Plan, the exercise or grant price of any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award, provided that no adjustment may be made that would affect adversely the status of any Award that is intended to be a performance-based Award under Section 162(m) of the Code, unless otherwise determined by the Committee. In addition, the Committee may make adjustments in the terms and conditions of any Awards (including any performance goals) in recognition of unusual or nonrecurring events affecting the Company or any subsidiary, or in response to changes in applicable laws, regulations or accounting principles, provided that no adjustment may be made that would adversely affect the status of any Award that is intended to be a performance-based Award under Section 162(m) of the Code, unless otherwise determined by the Committee.

Total compensation expense under the 2009 plan was approximately $56,000 and $15,000 for the three months ended June 30, 2011 and 2010, respectively. Total compensation expense associated with the 2009 plan was $166,000 and $0 for the nine months ended June 30, 2011 and 2010, respectively.

Stock repurchase program

On February 18, 2011, the Company’s Board of Directors approved the Common Stock repurchase program to acquire up to 1,000,000 shares of the Company’s outstanding Common Stock. The program will expire on February 10, 2012, unless further extended by the Company’s Board of Directors. Purchases of the stock are to be made from time to time, subject to market conditions and at prevailing market prices. No shares were purchased under this plan during the three and nine months ended June 30, 2011.