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15. STOCK OPTIONS

12 Months Ended

Sep. 30, 2013

Description of Stock Option Plan

On April 29, 2011, the 2011 Stock Incentive Plan was approved at the Annual Stockholder Meeting. The Company was authorized to issue options for, and has reserved for issuance, up to 7,000,000 shares of common stock under the 2011 Stock Incentive Plan. On March 21, 2013, an amendment to the Stock Option Plan was approved by the stockholders of the Company, increasing the number of shares reserved for issuance under the Plan to 14,000,000 shares.

Determining Fair Value Under ASC 505

The Company records compensation expense associated with stock options and other equity-based compensation using the Black-Scholes-Merton option valuation model for estimating fair value of stock options granted under our plan. The Company amortizes the fair value of stock options on a ratable basis over the requisite service periods, which are generally the vesting periods. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company estimates the volatility of our common stock based on the historical volatility of its own common stock over the most recent period corresponding with the estimated expected life of the award. The Company bases the risk-free interest rate used in the Black Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on our common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model and adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed.

Stock Option Activity

On November 9, 2011, Bradley E. Sparks, a former Director, forfeited a grant to purchase 1,000,000 shares of common stock at $0.75 per share.

On November 29, 2011, Jeff Kruse and Steve Waddle, employees of TransTech, were each granted an option to purchase 100,000 shares of common stock valued at $0.12 per share. The grants vest quarterly over three years and expire on November 28, 2014.

On February 15, 2012, Marco Hegyi forfeited a grant to purchase 2,000,000 shares of common stock at $0.50 per share.

On February 24, 2012, the Company issued 400,000 shares of common stock valued at $.08 per share to five directors (100,000 shares for Yoshitami Arai and Dr. Masahiro Kawahata, 75,000 shares for Jon Pepper and Paul Bonderson and 50,000 shares for Bradley Sparks) for services provided on the Board of Directors of the Company during 2011. The shares were issued under the 2011 Stock Incentive Plan.

On February 24, 2012, Marco Hegyi, our Chairman of the Board, was granted an option to purchase 1,900,000 shares of common stock valued at $0.10 per share. The grant vests 750,000 shares on February 24, 2012 and 250,000 shares per quarter. The grant vests upon a change in control and expires February 23, 2022.

On May 11, 2012, the Company issued a stock option grant for 100,000 shares of common stock to Lance Gima, a consultant for the development of forensic applications for our technology valued at $0.15 per share. The stock option grant vested immediately.

On May 11, 2012, Lance Gima, a consultant for the development of forensic applications for our technology, forfeited a stock option grant for 100,000 shares of common stock at $0.15 per share.

On September 19, 2012, Lynn Felsigner, an employee, forfeited a stock option grant for 100,000 shares of common stock at $0.18 per share.

Stock option grants totaling 5,100,000 shares of common stock valued at $0.13 per share have been made to three directors and four employees (Ron Erickson- 1,000,000 shares vesting June 6, 2013, Yoshitami Arai- 500,000 shares that vested immediately, Masahiro Kawahata- 500,000 shares that vested immediately, Mark Scott- 1,000,000 shares that vested on June 6, 2013, Richard Mander- 1,000,000 shares that vest quarterly from June 26, 2012 and Todd M. Sames- 1,000,000 shares that vest quarterly over three years from September 5, 2012 and Derek Jensen- 100,000 shares that vest quarterly from October 22, 2012) for services provided during 2012. These options were authorized for issuance under the 2011 Stock Incentive Plan and were effective March 21, 2013, when the Company was authorized to issue options up to 14,000,000 shares under the 2011 Stock Incentive Plan at the Annual Stockholder Meeting.

On August 27, 2013, the Company issued a stock option grant for 500,000 shares of common stock to Richard Mander, an employee, valued at $0.10 per share. The stock grant vests quarterly over three years.

On August 27, 2013, the Company issued stock option grants for 1,230,000 shares of common stock to twelve employees of TransTech valued at $0.10 per share. The stock grant vests quarterly over three years.

On March 31, 2013, Mr. Costello, an employee of TransTech, forfeited a stock option grant for 15,000 shares of common stock at $0.24 per share.

There are currently 12,735,000 options to purchase common stock at an average exercise price of $0.126 per share outstanding at September 30, 2013 under the 2011 Stock Incentive Plan. The Company recorded $250,013 and $266,172 of compensation expense, net of related tax effects, relative to stock options for the year ended September 30, 2013 and 2012 in accordance with ASC 505. Net loss per share (basic and diluted) associated with this expense was approximately ($0.00). As of September 30, 2013, there is approximately $372,771 of total unrecognized costs related to employee granted stock options that are not vested. These costs are expected to be recognized over a period of approximately 6.1 years.

Stock option activity for the year ended September 30, 2013 and 2012 was as follows:

				Weighted Average
	Options			Exercise Price			$
Outstanding as of September 30, 2011		6,920,000		$	0.296	$	2,050,800
Granted		2,200,000			0.104		229,000
Exercised		-			-		-
Forfeitures		(3,200,000	)		0.470		(1,503,000	)
Outstanding as of September 30, 2012		5,920,000			0.131		776,800
Granted		6,830,000			0.122		836,000
Exercised		-			-		-
Forfeitures		(15,000	)		0.240		(3,600	)
Outstanding as of September 30, 2013		12,735,000		$	0.126	$	1,609,200

The following table summarizes information about stock options outstanding and exercisable at September 30, 2013:

				Weighted	Weighted				Weighted
				Average	Average				Average
Range of		Number		Remaining Life	Exercise Price		Number		Exercise Price
Exercise Prices		Outstanding		In Years	Exerciseable		Exerciseable		Exerciseable
	0.090		500,000	6.25 years	$	0.090		375,000	$	0.090
	0.100		3,630,000	6.53 years		0.100		1,948,055		0.100
	0.120		200,000	.75 years		0.120		116,666		0.120
	0.130		5,100,000	6.18 years		0.130		3,808,334		0.130
	0.150		3,100,000	6.29 years		0.150		3,100,000		0.150
	0.240		205,000	1.75 years		0.240		187,917		0.240
			12,735,000	6.10 years	$	0.126		9,535,972	$	0.136

There is no aggregate intrinsic value of the exercisable options as of September 30, 2013.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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