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7. STOCK COMPENSATION | 12 Months Ended
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Sep. 30, 2012
Notes to Financial Statements |
7. STOCK COMPENSATION | The Company awarded employees and non-employees with stock compensation as follows:
|  | Fiscal Year Ended September 30,
|  | 2012 | 2011 | 2010 |
Employees | $ 2,266,316 | $ 1,641,131 | $ 1,528,843 |
Non-employees | $ 581,996 | $ 244,309 | $ 1,256,503 |
At September 30, 2012 and 2011, non-employee compensation excluded $53,333 and $141,333 for future serviced to be performed. At September 30, 2011, $35,000 of non-employee compensation was for services provided in fiscal year 2010. See Note 11 for more detail on non-employee compensation. The Company recognized expense of $2,229,326 for options issued or vested during the year ended September 30, 2012, expense of $1,535,329 for options issued or vested during the year ended September 30, 2011 and expense of $1,316,399 for options issued or vested during the year ending September 30, 2010. This expense was recorded as general and administrative expense. The Company received a total of $0, $13,056 and $36,330 from the exercise of options during the years ended September 30, 2012, 2011 and 2010, respectively. The total intrinsic value of options exercised during the fiscal years 2012, 2011 and 2010 was $0, $10,944, and $32,999, respectively. During the year ended September 30, 2012, the Company issued 6,679,372 stock options to employees and directors at a fair value of $1,876,122, ($0.28 fair value per option). The Company also cancelled 3,900,465 stock options that were outstanding to employees and directors at a fair value of $265,096, ($0.07 fair value per option). During the year ended September 30, 2011, the Company issued 2,379,594 stock options to employees and directors at a fair value of $1,458,764, ($0.61 fair value per option). During the year ended September 30, 2010, the Company issued 2,553,450 stock options to employees and directors at a fair value of $1,333,831, ($0.52 fair value per option). On September 30, 2012, the Company had 16,490,629 options that were unvested at a fair value of $5,934,945, which is a weighted average fair value of $0.36 per share with a weighted average remaining vesting life of 1.36 years. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions.
| 2012 | 2011 | 2010
Expected stock price volatility | 87.72-94.93% | 96.5-97% | 98.6-104.5%
Risk-free interest rate | 0.83-1.92% | 2.97-3.68% | 2.54-4.01%
Expected life of options | 4.82-9.66 Years | 9.62-9.63 Years | 9.63-10 Years
Expected dividend yield | - | - | -
Non-Qualified Stock Option Plan --At September 30, 2012, the Company has collectively authorized the issuance of 37,760,000 shares of common stock under its Non-Qualified Stock Option Plan. Options typically vest over a three-year period and expire no later than ten years after the grant date. Terms of the options are to be determined by the Company’s Compensation Committee, which administers the plans. The Company’s employees, directors, officers, and consultants or advisors are eligible to be granted options under the Non-Qualified Stock Option Plans. Incentive Stock Option Plan--At September 30, 2012, the Company had collectively authorized the issuance of 21,100,000 shares of common stock under its Incentive Stock Option Plan. Options vest over a one-year to three-year period and expire no later than ten years after the grant date. Terms of the options were determined by the Company’s Compensation Committee, which administers the plans. Only the Company’s employees are eligible to be granted options under the Incentive Stock Option Plans. Activity in the Company’s Non-Qualified and Incentive Stock Option Plans for the year ended September 30, 2012 is summarized as follows: Non-Qualified and Incentive Stock Option Plans
| Outstanding |  | Exercisable
|  |  |  |  |  |  |  | Weighted |
|  |  | Weighted Ave |  |  |  | Weighted | Ave Remaining |
| Number of | Weighted Average | Remaining Contractual | Aggregate Intrinsic |  | Number of | Average Exercise | Contractual Term | Aggregate Intrinsic
| Shares | Exercise Price | Term (Years) | Value |  | Shares | Price | (Years) | Value
Outstanding at October 1, 2011 | 34,629,281 | $ 0.48 | 6.18 | $ 1,491,778 |  | 19,514,135 | $ 0.50 | 4.60 | $ 1,382,028
Vested |  |  |  |  |  | 5,391,489 | $ 0.42 |  |
Granted | 6,779,372 | $ 0.36 | 7.10 | $ 96,111 |  |  |  |  |
Exercised | - |  |  |  |  | - |  |  |
Forfeited | (12,400) | $ 0.68 |  |  |  |  |  |  |
Expired | (23,700) | $ 0.61 |  |  |  | (23,700) | $ 0.61 |  |
Cancelled | (3,900,465) | $ 1.04 |  |  |  | (3,900,465) | $ 1.04 |  |
Outstanding at September 30, 2012 | 37,472,088 | $ 0.40 | 6.01 | $ 1,101,881 |  | 20,981,459 | $ 0.38 | 4.71 | $ 1,101,881
A summary of the status of the Company’s non-vested options as of September 30, 2012 is presented below:
| Number of Shares | Weighted Average Grant Date Fair Value
Unvested at September 30, 2011 | 15,115,146 | $0.39
Vested | (5,391,489) |
Granted | 6,779,372 | $0.28
Forfeited | (12,400) |
Unvested at September 30, 2012 | 16,490,629 | $0.36
In January 2010, the Company extended the expiration date on 518,832 options from the Stock Option Plans with exercise prices ranging from $1.05 to $1.76. The options originally would have expired between February 2010 and December 2010 and were extended for three years to expiration dates ranging from February 2013 to December 2013. This extension was considered a new measurement date with respect to the modified options. At the date of modification, the additional cost of the options was $212,444. On December 5, 2011, all of these stock options were cancelled. In January 2011, the Company extended the expiration date on 306,500 options from the Stock Option Plans with exercise prices ranging from $1.00 to $1.85. The options originally would have expired between January 2011 and December 2011 and were extended for three years to expiration dates ranging from January 2014 to December 2014. This extension was considered a new measurement date with respect to the modified options. At the date of modification, the additional cost of the options was $105,802. On December 5, 2011, all of these stock options were cancelled. In November 2011, the Company offered the employees and directors holding options that were priced above $0.40 and which expire during the 2012, 2013 and 2014 calendar years the opportunity to have the expiration date of those options extended to December 1, 2016 and have the price lowered to $0.32 if they accepted a 20% reduction in the number of options that they held. All nineteen employees and directors who were eligible for this offer accepted the terms. This resulted in the cancellation of 3,900,465 options priced between $0.54 and $1.94 and the issuance of 3,120,372 options at $0.32 which vested immediately. In accordance with ASC 718-20-35-3, the incremental compensation cost shall be measured as the excess of the fair value of the replacement award or other valuable consideration over the fair value of the cancelled award at the cancellation date. At the date of the cancellation, the incremental cost was $409,370. As of September 30, 2012, all repriced options remained outstanding. In December 2011, the Company extended the expiration date on 291,666 options from the Stock Option Plans with exercise prices ranging from $0.16 to $0.33. The options originally would have expired between April 2012 and August 2012 and were extended for three years to expiration dates ranging from April 2015 to August 2015. This extension was considered a new measurement date with respect to the modified options. At the date of modification, the additional cost of the options was $36,990. As of September 30, 2012, all repriced options remained outstanding. During the year ended September 30, 2012, the Company issued 100,000 options to a consultant. Refer to Note 2 for details. Stock Bonus Plans -- At September 30, 2012, the Company had been authorized to issue up to 15,940,000 shares of common stock under its Stock Bonus Plans. All employees, directors, officers, consultants, and advisors are eligible to be granted shares. During the year ended September 30, 2012, 426,265 shares were issued to the Company’s 401(k) plan for a cost of $154,516. During the year ended September 30, 2011, 294,309 shares were issued to the Company’s 401(k) plan for a cost of $150,865. During the year ended September 30, 2010, 182,233 shares were issued to the Company’s 401(k) plan for a cost of $112,325. During the years ended September 30, 2012, 2011 and 2010, the Company also issued 6,181, 71,111 and 113,520 shares, respectively, to consultants for payment of services at a cost of $1,792, $31,160 and $75,200, respectively. Stock Compensation Plan-- At September 30, 2012, 13,500,000 shares were authorized for use in the Company’s stock compensation plan. During the year ended September 30, 2012, 1,000,000 shares were issued from the Stock Compensation Plan to a consultant for payment of services at a cost of $320,000. No shares were issued from the Stock Compensation Plan during the years ended September 30, 2011 and 2010.

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