STOCK OPTIONS AND WARRANTS

9 Months Ended

Jun. 30, 2013

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

STOCK OPTIONS AND WARRANTS

NOTE F - STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes the changes in warrants outstanding and the related prices for the shares of 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 Common Stock.

			Warrants
			Outstanding	Weighted			Exercisable
			Remaining	Average		Weighted	Weighted
Exercise		Number	Contractual	Exercise		Average	Average
Prices		Outstanding	Life (Years)	Price		Exercisable	Exercise Price
$	0.04000	3,000,000	2.17	$	0.04000	3,000,000	$	0.04000
$	0.04405	510,784	4.04	$	0.04405	510,784	$	0.04405
$	0.04750	3,789,489	5.04	$	0.04750	3,789,489	$	0.04750
$	0.05529	226,081	4.53	$	0.05529	226,081	$	0.05529
$	0.06000	2,000,000	0.64	$	0.06000	2,000,000	$	0.06000
$	0.07100	1,000,000	1.57	$	0.07100	1,000,000	$	0.07100
$	0.09000	6,900,000	3.18	$	0.09000	6,900,000	$	0.09000
$	0.17900	100,000	2.35	$	0.17900	100,000	$	0.17900
$	0.21400	100,000	2.85	$	0.21400	—		—
$	0.50000	1,600,000	0.32	$	0.50000	1,600,000	$	0.50000
		19,226,354	2.83	$	0.10331	19,126,354	$	0.10273

Transactions involving warrants are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Balance, October 1, 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 at September 30, 2012		45,840,647		$	0.145
Granted		67,404,300			0.223
Exercised		(60,236,873	)		(0.170	)
Cancelled or expired		(33,781,720	)		(0.280	)
Balance, June 30, 2013		19,226,354		$	0.103

Transactions involving warrants are summarized as follows:

On November 7, 2012, 100,000 warrants were issued in connection with services. The warrants are exercisable on or after May 7, 2013 for three years at an exercise price of $0.179 per share. The fair value of the warrants of $13,238 was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 129.56% and risk free rate from 0.36% and were charged to current period operations.

On November 29, 2012, in connection with a securities purchase agreement as described in Note E above, the Company issued an aggregate of 67,204,300 warrants to purchase the Company’s common stock exercisable for one to five years after defined date or events, at an exercise price of $0.2232.

In March 2013, the Company issued an aggregate of 1,500,000 shares of its common stock in connection with the exercise of warrants at an exercise price of $0.10 per share; net proceeds of $150,000.

In April 2013, the Company issued 11,285,376 shares of its common stock in connection with the cashless exercise of 15,438,337 warrants to acquire the Company’s stock at a weighted average exercise price of $0.063 per share.

In May 2013, the Company issued 2,418,971 shares of its common stock in connection with the cashless exercise of 2,975,956 warrants to acquire the Company’s stock at a weighted average exercise price of $0.042 per share.

On May 7, 2013, 100,000 warrants were issued in connection with services. The warrants are exercisable on or after November 7, 2013 for three years at an exercise price of $0.214 per share.  The fair value of the warrants of $15,018 was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 119.72% and risk free rate from 0.35% and were charged to current period operations.

As described in Note E above, on January 22, 2013, the Company exercised its option to repurchase 26,881,720 Series C Warrants issued to Crede for $50,000.  On April 25, 2013, Crede effected the cashless exercise of 10,752,688 Series A Warrants and 29,569,892 Series B Warrants, and the Company thereupon issued to Crede an aggregate of 31,257,045 shares of its Common Stock.

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 there under. 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 there under 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 the Company’s success with an award of options to purchase shares of Common Stock.  As of June 30, 2013, a total of 137,583,192 shares have been issued and options to purchase 121,354,192 shares are outstanding under the 2005 Incentive Stock Plan.

The following table summarizes the changes in options outstanding and the related prices for the shares of 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
$	0.0500	24,000,000	1.91	$	0.0500	24,000,000	$	0.0500
$	0.0585	50,000,000	5.04	$	0.0585	31,250,000	$	0.0585
$	0.0600	30,000,000	2.00	$	0.0600	22,500,000	$	0.0600
$	0.0650	634,825	3.43	$	0.6500	634,825	$	0.0650
$	0.0680	4,770,000	3.42	$	0.0680	4,770,000	$	0.0680
$	0.0700	2,850,000	1.86	$	0.0700	1,837,500	$	0.0700
$	0.0900	1,500,000	3.17	$	0.0900	1,500,000	$	0.0900
$	0.1100	5,400,000	4.96	$	0.1100	5,400,000	$	0.1100
$	0.1799	2,099,367	4.42	$	0.1799	—	$	—
$	0.2000	100,000	4.88	$	0.2000	—	$	—
		121,354,192	3.49	$	0.0628	91,892,325	$	0.0610

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

	Number of Shares			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value
Outstanding at October 1, 2011		120,650,000		$	0.060
Granted		6,558,825			0.070
Exercised		(500,000	)		(0.080	)
Cancelled or expired		(1,500,000	)		(0.080	)
Outstanding at September 30, 2012		125,208,825		$	0.060
Granted		7,599,367			0.131
Exercised		(5,979,000	)		(0.042	)
Canceled or expired		(5,475,000	)		(0.109	)
Outstanding at June 30, 2013		121,354,192		$	0.063
Vested at June 30, 2013		91,892,325		$	0.061		$	0.138
Non-vested at June 30, 2013		29,461,867		$	0.068		$	0.131

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

On November 30, 2012, the Company granted an aggregate of 2,099,367 options to non-employee board of director members (except Mr. Catenacci) under the 2005 Incentive Stock Plan. The options are exercisable at $0.1799 per share for five years, vesting one year from the date of issuance. The fair value of options was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 146.33% and risk free rate of 0.82%.

On May 12, 2013, the Company granted an aggregate of 100,000 options to an employee under the 2005 Incentive Stock Plan.  The options are exercisable at $0.20 per share for five years, vesting at 25% each anniversary for the next four years. The fair value of the options was determined using the Black Scholes Option Pricing Model with the following assumptions:  dividend yield $-0-, volatility of 117.57% and risk free rate of 0.60%.

During the nine months ended June 30, 2013, the Company issued 4,639,483 shares of its Common Stock in connection with the cashless exercise of 5,954,000 options to acquire the Company stock at weighted average $.053 per share. The Company also issued 25,000 shares of its Common Stock in connection with the exercise of 25,000 options at $0.06 per share.

On May 15, 2013 the Company extended the term of 5,400,000 options that were set to expire to June 16, 2018.  The Company recorded $408,605 of stock compensation expense for the three and nine months ended June 30, 2013 in connection with this modification as the incremental difference between the fair value of the stock options immediately before and after the modification.

The Company recorded $870,576 and $1,743,598 (including the stock option modification) as stock compensation expense for the three and nine month periods ended June 30, 2013, respectively, and $389,533 and $1,564,311 for the three and nine month periods ended June 30, 2012, respectively, for the vesting portion of all employee options outstanding. As of June 30, 2013, unrecorded compensation cost related to non-vested awards was $289,106, which is expected to be recognized through 2018.