Annual report pursuant to Section 13 and 15(d)

COMMON STOCK OPTIONS

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COMMON STOCK OPTIONS
12 Months Ended
Sep. 30, 2012
Common Stock Options  
COMMON STOCK OPTIONS
NOTE 8 – COMMON STOCK OPTIONS
 
The Company has determined the estimated value of the options granted to employees and non-employees in exchange for services and financing expenses using the Black-Scholes pricing model and the following assumptions: stock price at valuation, $0.40-0.65; expected term of five years, exercise price of $0.50-0.57, a risk free interest rate of 0.83-2.60 percent, a dividend yield of 0 percent and volatility of 192-277 percent.
 
On April 12, 2010 the Company granted 1,000,000 options to employees as part of its 2009 stock option plan.  The Company calculated a fair value of $0.40 per option. Of the 1,000,000 options issued, 520,000 vested upon issuance and the remaining 480,000 vest over the five year life of the options.  As of September 30, 2012, 790,000 options have vested resulting in compensation expense of $315,341.  In the years ended September 30, 2012 and 2011, 120,000 shares vested, resulting in compensation expense in each period of $47,900.
 
On March 9, 2012, the Company agreed to grant 1,700,000 options to board members and executives. The Company calculated a fair value of $0.63 per option. Of the 1,700,000 options issued, 425,000 vested upon issuance and the remaining 1,275,000 vest in 25 percent tranches on each anniversary.  As of September 30, 2012, 425,000 options have vested resulting in compensation expense of $358,367. 
 
Below is a table summarizing the options issued and outstanding as of September 30, 2012.

Date
 
Number
   
Exercise
   
Contractual
   
Expiration
   
Value if
 
Issued
 
Outstanding
   
Price
   
Life (Years)
   
Date
   
Exercised
 
Prior 10/1/2008
        $                 $  
04/09/09
    579,141       0.65       5    
04/09/13
      376,442  
Balance 09/30/2009
    579,141       0.65                   376,442  
04/12/10
    1,000,000       0.50       5    
04/12/15
      500,000  
Expired
    (32,176 )     0.65                   (20,914 )
Balance 9/30/2010
    1,546,965     $ 0.55                 $ 855,528  
Issued
                             
Expired
                             
Balance 9/30/2011
    1,546,965     $ 0.55                 $ 855,528  
03/09/12
    1,700,000       0.57       5    
03/09/17
      969,000  
Expired
                             
09/30/12
    3,246,965     $ 0.56                 $ 1,824,528  

As of September 30, 2012, the outstanding options have an intrinsic value of approximately $1.45 million.