STOCK OPTIONS AND WARRANTS

12 Months Ended

Sep. 30, 2012

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

STOCK OPTIONS AND WARRANTS

NOTE G - STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s Common Stock issued to non-employees of the Company. These warrants were granted in lieu of cash compensation for services performed or financing expenses in connection with the sale of the Company’s Common Stock.

				Warrants
				Outstanding		Weighted				Exercisable
				Remaining		Average		Weighted		Weighted
	Exercise	Number		Contractual		Exercise		Average		Average
	Prices	Outstanding		Life (Years)		Price		Exercisable		Exercise Price
$	0.03088		1,619,171		5.17	$	0.03088		1,619,171	$	0.03088
$	0.03283		355,421		5.14	$	0.03283		355,421	$	0.03283
$	0.04		3,000,000		2.92	$	0.04		3,000,000	$	0.04
$	0.04405		2,009,081		4.79	$	0.04405		2,009,081	$	0.04405
$	0.04750		5,052,652		5.79	$	0.04750		5,052,652	$	0.04750
$	0.05529		904,322		5.27	$	0.05529		904,322	$	0.05529
$	0.06		12,000,000		2.38	$	0.06		12,000,000	$	0.06
$	0.071		1,000,000		2.32	$	0.071		—	$	0.071
$	0.09		9,900,000		3.92	$	0.09		9,900,000	$	0.09
$	0.10		1,500,000		0.48	$	0.10		1,500,000	$	0.10
$	0.50		8,500,000		0.34	$	0.50		8,500,000	$	0.50
			45,840,647		2.97	$	0.14		44,840,647	$	0.145

Transactions involving warrants are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Balance, September 30, 2010		69,207,946		$	0.237
Granted		11,897,334			0.044
Exercised		—			-
Cancelled or expired		(22,900,000	)		(0.384	)
Balance at September 30, 2011		58,205,280		$	0.140
Granted		1,075,000			0.071
Exercised		(5,039,633	)		(0.045	)
Cancelled or expired		(8,400,000	)		(0.161	)
Balance, September 30, 2012		45,840,647		$	0.145

In the month of November 2010, warrants totaling 2,961,872 were issued in connection with services provided in connection with the issuance of convertible notes. The warrants are exercisable for seven years from the date of issuance at exercise prices from $0.03088 to $0.03283 per share. The fair values of the warrants were determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 169.06% to 169.21% and risk free rate from 2.16% to 2.20%.

The determined fair value of $120,840 is charged ratably to current period operations over one year. During the years ended September 30, 2012 and 2011, $18,851 and $101,989 was charged to operations, respectively.

In the month of January 2011, warrants totaling 1,356,484 were issued in connection with services provided in connection with the issuance of convertible notes. The warrants are exercisable for seven years from the date of issuance at an exercise price of $0.05529 per share. The fair values of the warrants were determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 170.33% and risk free rate of 2.69%.

The determined fair value of $97,131 is charged ratably to current period operations over one year. During the years ended September 30, 2012 and 2011, $26,478 and $70,653 was charged to operations, respectively.

During the month of July 2011, warrants totaling 7,578,978 were issued in connection with the sale of the Company’s Common Stock. The warrants are exercisable for seven years from the date of issuance at an exercise price of $0.04750 per share.

On August 12, 2011, the Company extended the expiration date of previously issued warrants exercisable at $0.09 per share to consultants. The warrants were extended from September 1, 2011 to September 1, 2016. The change in fair value of the warrants of $194,424 was charged to current period operations and was determined using the Black Scholes Option Pricing model with the following assumptions: dividend yield $-0-, volatility of 162.03% and risk free rate from 0.01% to 0.32%.

On October 31, 2011, warrants totaling 75,000 were issued in connection with services. The warrants are exercisable for three years from the date of issuance at an exercise price of $0.07 per share with vesting immediately. The fair value of the warrants of $1,363 was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 157.69% and risk free rate from 0.41% and were charged to current period operations.

On January 25, 2012, warrants totaling 1,000,000 were issued in connection with services. The warrants are exercisable for three years from the date of issuance at an exercise price of $0.071 per share and will vest in full on the first anniversary of the date of grant. The fair value of the warrants of $56,875 was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 147.53% and risk free rate from 0.81% and were charged to current period operations.

In September 2012, the Company issued an aggregate of 5,012,160 shares of Common Stock in settlement of 5,039,633 warrants exercised on a cashless basis.

Employee Stock Options

On January 26, 2005, the Board of Directors, and on February 15, 2005, the holders of a majority of the outstanding shares of Common Stock approved the 2005 Incentive Stock Plan and authorized the issuance of 16,000,000 shares of Common Stock as stock awards and stock options thereunder. On May 16, 2007, at the annual meeting of stockholders, the holders of a majority of the outstanding shares of Common Stock approved an increase in the number of shares subject to the 2005 Incentive Stock Plan to 20,000,000 shares of Common Stock. On June 17, 2008, the Board of Directors unanimously adopted an amendment to the 2005 Incentive Stock Plan that increased the total number of shares of Common Stock issuable pursuant to the 2005 Incentive Stock Plan from a total of 20,000,000 shares to a total of 100,000,000 shares, which was approved by our stockholders at the 2008 annual meeting of stockholders held on December 16, 2008. On November 30, 2011, the Board of Directors unanimously adopted an amendment to the 2005 Incentive Stock Plan that increased the total number of shares of Common Stock issuable thereunder to 350,000,000 and the number of shares of Common Stock that can be covered by awards made to any participant in any calendar year to 50,000,000, which was approved by our stockholders at the 2012 annual meeting of stockholders held on January 27, 2012.

The 2005 Incentive Stock Plan is designed to retain directors, executives, and selected employees and consultants by rewarding them for making contributions to our success with an award of options to purchase shares of Common Stock. As of September 30, 2012, a total of 10,175,000 shares have been issued and options to purchase 125,208,825 shares have been granted under the 2005 Incentive Stock Plan.

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s Common Stock issued to employees of the Company under the 2005 Incentive Stock Plan:

	Options Outstanding					Options Exercisable
	Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.05		29,000,000		2.65	$	0.05		29,000,000	$	0.05
$	0.0585		50,000,000		5.79	$	0.0585		31,250,000	$	0.0585
$	0.06		30,100,000		2.76	$	0.06		22,500,000	$	0.06
$	0.065		634,825		4.18	$	0.065		634,825	$	0.065
$	0.068		5,724,000		4.17	$	0.068		5,724,000	$	0.068
$	0.07		2,850,000		2.67	$	0.07		1,187,500	$	0.07
$	0.09		1,500,000		3.92	$	0.09		1,500,000	$	0.09
$	0.11		5,400,000		0.71	$	0.11		5,400,000	$	0.11
			125,208,825		3.94	$	0.06		97,196,325	$	0.06

Transactions involving stock options issued to employees are summarized as follows:

	Number of Shares			Weighted Average Exercise Price Per Share
Outstanding at October 1, 2010		66,900,000		$	0.060
Granted		53,750,000			0.060
Exercised		—			-
Cancelled or expired		—			-
Outstanding at September 30, 2011		120,650,000		$	0.060
Granted		6,558,825			0.067
Exercised		(500,000	)		(0.08	)
Expired		(1,500,000	)		(0.08	)
Outstanding at September 30, 2012		125,208,825		$	0.060

On December 13, 2010, the Company granted 1,500,000 options to purchase the Company’s Common Stock at an exercise price of $0.07 per share for five years to an employee with vesting at 25% each anniversary for the next four years. The fair value of options was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 171.29% and risk free rate of 0.98%.

On January 4, 2011, the Company granted 2,000,000 options to purchase the Company’s Common Stock at an exercise price of $0.08 per share for five years to an employee with vesting at 25% each anniversary for the next four years. The fair value of options was determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 170.62% and risk free rate of 2.01%.

On July 11, 2011, the Company granted an aggregate of 50,000,000 options to purchase the Company’s Common Stock at an exercise price of $0.0585 per share for seven years to key officers with vesting as follows: 25% immediately, 37.5% each anniversary for the next two years with vesting acceleration dependent on defined revenue targets. The fair value of options was determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 162.37% and risk free rate of 2.22%.

On August 1, 2011, the Company granted 250,000 options to purchase the Company’s Common stock at an exercise price of $0.07 per share for five years to an employee with vesting at 25% each anniversary for the next four years. The fair value of options was determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 162.43% and risk free rate of 1.32%.

On August 12, 2011, the Company extended the expiry date of previously issued options exercisable at $0.09 per share to key officers. The fully vested options were extended from September 1, 2011 to September 1, 2016. The change in fair value of the options of $544,386 was charged to current period operations and was determined using the Black-Scholes Option Pricing model with the following assumptions: dividend yield $-0-, volatility of 162.03% and risk free rate from 0.01% to 0.32%.

On November 30, 2011, the Company granted an aggregate of 5,724,000 options to purchase the Company’s Common Stock at an exercise price of $0.068 per share for five years to directors with immediate vesting. The fair value of options was determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 156.65% and risk free rate of 0.96%.

On December 6, 2011, the Company granted an aggregate of 634,825 options to purchase the Company’s Common Stock at an exercise price of $0.065 per share for five years to directors with immediate vesting. The fair value of options was determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 156.29% and risk free rate of 0.94%.

On February 8, 2012, the Company granted 100,000 options to purchase the Company’s Common Stock at an exercise price of $0.07 per share for five years to an employee with vesting at 25% each anniversary for the next four years. The fair value of options was determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 152.56% and risk free rate of 0.82%.

On March 16, 2012, the Company granted 100,000 options to purchase the Company’s Common Stock at an exercise price of $0.06 per share for five years to an employee with vesting at 25% each anniversary for the next four years. The fair value of options was determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 149.81% and risk free rate of 1.13%.

On September 24, 2012, the Company issued 349,114 shares of Common Stock in settlement of 500,000 options exercised on a cashless basis and the remaining 1,500,000 options expired.

The Company recorded $1,953,844 and $1,485,068 as stock compensation expense for the years ended September 30, 2012 and 2011, respectively.