Annual report pursuant to section 13 and 15(d)

STOCKHOLDERS' EQUITY

v2.3.0.11
STOCKHOLDERS' EQUITY
 12 Months Ended
Sep. 30, 2011
STOCKHOLDERS' EQUITY
8.
STOCKHOLDERS’ EQUITY

Issuances of Common Stock

November 2010 Equity Issuance Agreement

On November 29, 2010, the Company and Joint Corporation FeelTech Investment Unit 1 (the “Purchaser”) entered into a Stock Purchase Agreement (the “Agreement”) for the purchase of $200,000 worth of the Company’s common stock, $0.001 par value per share (“Common Stock”), over a three month period.

Under the terms of the Agreement, the Company agreed to sell, and the Purchaser is obligated to purchase, unregistered shares of common stock in multiple investment tranches (each, a “Tranche”) for an aggregate purchase price of $200,000.  The per share price in each Tranche was determined by adding (i) $0.50 and (ii) the average closing price for the Common Stock as reported by the NASDAQ Capital Market for the 90-day period immediately preceding (but not including) the closing date of the applicable Tranche.  The Agreement was satisfied by the Purchaser as follows:

 
·
$50,000 was wired to the Company on December 3, 2010 in exchange for the Company’s issuance of 8,421 shares of Common Stock (determined by using the $5.94 per share purchase price applicable to the first Tranche).

 
·
$50,000 was wired to the Company’s designated account on December 22, 2010 in exchange for the issuance of 7,383 shares (determined by using the $6.77 per share purchase price applicable to the second Tranche).

 
·
$50,000 was wired to the Company’s designated account on January 22, 2011 in exchange for the issuance of 7,057 shares (determined by using the $7.09 per share purchase price applicable to the third Tranche).

 
·
$50,000 was wired to the Company’s designated account on February 25, 2011 in exchange for the issuance of 7,620 shares (determined by using the $6.56 per share purchase price applicable to the fourth Tranche).

The Company issued and sold the shares of Common Stock to the Purchaser in reliance on the exemption provided under Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated by the Securities and Exchange Commission (the “SEC”).

March 2011 Equity Issuance Agreement

On March 22, 2011, the Company and six new investors (the “March Purchasers”) entered into a Stock Purchase Agreement (the “March Agreement”), pursuant to which the March Purchasers committed to purchase an aggregate of $150,000 worth of the Company’s common stock, $0.001 par value per share, over a three month period.

Under the terms of the March Agreement, the Company agreed to sell, and each March Purchaser is obligated to purchase by a specified date, Common Stock for an aggregate purchase price of $25,000.  The per share price is to be determined by adding (i) $0.50 and (ii) the average closing price for the Common Stock as reported by the NASDAQ Capital Market for the 90-day period immediately preceding (but not including) the closing date of the applicable purchase.

 
·
$50,000 was wired to the Company’s designated account on March 28, 2011 in exchange for the issuance of 9,061 shares (determined by using the $5.52 per share purchase price applicable).

 
·
$50,000 was wired to the Company’s designated account on April 26, 2011 in exchange for the issuance of 10,656 shares (determined by using the $4.69 per share purchase price applicable).


 
·
An additional $50,000 was due to be wired to the Company’s designated account on or before May 25, 2011, but such amount was never paid by the applicable March Purchasers.  On or about July 7, 2011, the Company provided written notice to the applicable March Purchasers that it considered them to be in material breach of their agreements with the Company.  Under the applicable March Agreements, the Company is entitled to, among other potential remedies; repurchase any and all shares previously issued to the March Purchasers and their affiliates for an amount equal to the applicable purchase price paid for such shares less $0.50 per share.  The March Purchasers have not responded to the Company’s notice of breach.  The Company has taken action to preserve its rights under the March Agreements while it considers the potential remedies that could be pursued.

Stock Purchase Agreements – August/September 2011

As previously disclosed, on August 29, 2011 and September 29, 2011, respectively, the Company entered into a series of Stock Purchase Agreements (the “Stock Purchase Agreements”) with four investors (the “Investors”).  Pursuant to the Stock Purchase Agreements, the Investors agreed to purchase an aggregate of 816,327 shares of Common Stock in a private placement transaction for an aggregate purchase price of $2.0 million.  Additional information regarding the Stock Purchase Agreements and the transactions contemplated thereby was set forth in a definitive proxy statement filed by the Company with the Securities and Exchange Commission on October 25, 2011. Stockholder approval of the Stock Purchase Agreements and the transactions contemplated thereby was obtained at a special meeting on November 24, 2011.

On November 30, 2011, the Investors failed to perform their obligations under the Stock Purchase Agreements by, among other things, failing to pay the purchase price described above.  Accordingly, the transactions contemplated by the Stock Purchase Agreements were never consummated, and the Company sent the Investors a notice of termination of the Stock Purchase Agreements on December 12, 2011.  The Company did not incur any penalties in connection with its termination of the Stock Purchase Agreements.

Series E Convertible Preferred Stock

During the year ended September 30, 2002, pursuant to an existing tender offer, holders of 13,184 shares of the Company’s common stock exchanged said shares for 131,840 shares of Series E Convertible Preferred Stock, at the then $0.85 market value of the common stock.  The shares carry a $0.30 per share liquidation preference and accrue dividends at the rate of 5% per annum on the liquidation preference per share, payable quarterly from legally available funds. If such funds are not available, dividends shall continue to accumulate until they can be paid from legally available funds.  Holders of the preferred shares are entitled, after two years from issuance, to convert them into common shares on a hundred-to-one basis together with payment of $0.45 per converted share.

Treasury Stock

The Company’s treasury stock consists of shares repurchased on the open market or shares received through various agreements with third parties.  The value of such shares is determined based on cash paid or quoted market prices.
 
On May 25, 2007, the Company’s Board of Directors terminated its pre-existing stock repurchase plan and replaced it with a new plan authorizing repurchases of up to $1,000,000 of common stock from time to time on the open market or in privately negotiated transactions.  The repurchase plan was increased by another $500,000 on October 23, 2008.  During the year ended September 30, 2011 there were no stock repurchases. In 2010, the Company acquired an aggregate of 1,341 shares of common stock for an aggregate repurchase price of $25,882.

Dividends

During each of the years ended September 30, 2011 and 2010, the Company accrued dividends of $1,918 and $1,918, respectively, payable to holders of Series E preferred stock.  No dividends were paid in 2011 or 2010.