Stock Options

6 Months Ended

Mar. 31, 2013

Stock Options [Abstract]

STOCK OPTIONS

NOTE 4 STOCK OPTIONS

On January 23, 2013, the Company granted options to employees to purchase 475,000 shares of common stock at an exercise price of $1.71 per share.  237,500 shares were vested immediately, 118,750 shares will be vested after one year of employment, and 118,750 shares will be vested after two years of employment.

On January 23, 2013, the Company granted options to non-employees to purchase 45,000 shares of common stock at an exercise price of $1.71 per share.  22,500 shares were vested immediately, 11,250 shares will be vested after one year of service, and 11,250 shares will be vested after two years of service.

On February 12, 2012, the Company granted options to employees to purchase 2,900,000 shares of common stock at an exercise price of $4.09 per share.  500,000 shares will be vested if the Company raises an aggregate of Five Million ($5,000,000) in gross proceeds from the sales of securities after the grant date and on or before September 30, 2012.  1,200,000 shares will be vested if the Company has either (a) achieved greater than thirty (30) thousand cubic feet per day gas production from at least twenty production pumps on or before March 31, 2013, or (b) collected at least $1 million (USD) from licensees and other customers after the grant date and on or before March 31, 2013.  1,200,000 shares will be vested if the Company has both (a) achieved for any period consisting of four consecutive fiscal quarters aggregate gross revenue per share of at least Twenty ($.20) Cents, and (b) the Company’s shares shall have been listed/quoted for trading on NASDAQ’s Capital market on or before March 31, 2014.  As of March 31, 2013, the first and second performance conditions were not achieved and those options have been canceled.  The Company has determined that none of the remaining performance conditions are probable of achievement as of the date of these financial statements and, therefore, no value has been recognized on these options.

On February 12, 2012, the Company granted options to employees to purchase 300,000 shares of common stock at an exercise price of $4.09 per share in connection with the purchase of technology and intellectual property (See Notes 2(B) and 7).  The options will be vested if, on or before January 9, 2014, the acquired technology described in U.S. Provisional Patent Application No. 61/583,531 entitled “A Pervaporation system for treating industrial produced water”, filed on January 9, 2012 and any and all foreign counterpart patent applications currently existing or filed in the future will be commercialized by the Company.  The Company has determined that none of the performance conditions are probable of achievement as of the date of these financial statements and, therefore, no value has been recognized on these options.

On February 12, 2012, the Company granted options to a non-employee to purchase 50,000 shares of common stock at an exercise price of $4.09 per share.  16,666 shares were vested immediately, 16,666 shares will be vested when the Company files a Definitive Patent Application and it is determined that the non-employee has fulfilled his obligation to assist the Company in such endeavor.  16,667 shares will be vested when the Company has determined that the non-employee has fulfilled his obligation to assist the Company in obtaining patent protection for the acquired technology described in U.S. Provisional Patent Application No. 61/583,531 entitled “A Pervaporation system for treating industrial produced water”, filed on January 9, 2012 and any and all foreign counterpart patent applications currently existing or filed in the future.  Vesting is not conditioned upon the Company’s patent application resulting in the issuance of the patent.

On December 22, 2011, the Company granted an option to a non-employee to purchase 10,000 shares of common stock at an exercise price of $4.20 per share.  3,333 shares will be vested after one year of service, 3,333 shares will be vested after two years of service, and 3,334 shares will be vested after three years of service.

On November 17, 2011, the Company granted options to employees to purchase 375,000 shares of common stock at an exercise price of $4.25 per share, and 75,000 to an employee at an exercise price of $4.68 per share.  100,000 shares were vested immediately, 116,664 shares will be vested after one year of employment, 116,668 shares will be vested after two years of employment, and 116,668 shares will be vested after three years of employment.

On November 17, 2011, the Company granted an option to a non-employee to purchase 10,000 shares of common stock at an exercise price of $4.25 per share.  3,333 shares will be vested after one year of service, 3,333 shares will be vested after two years of service, and 3,334 shares will be vested after three years of service.

The Company has valued the above options at their fair value using the Black-Scholes option pricing method.  In addition to the exercise and grant date prices of the option, certain assumptions that were used to estimate the fair value of the stock option grants are listed in the following table:

	Employee		Non-Employee
	Stock Options		Stock Options
Expected term (years)		3 – 3.5		8.8 - 10
Expected volatility		57.57% - 89.43%		57.57% - 89.43%
Risk-free interest rate		0.37% - 0.40%		1.55% - 2.03%
Expected dividends		0		0

During the six months ended March 31, 2013 and 2012, the Company recognized compensation expense related to stock options of $397,024 and $216,059, respectively.  

For the six months ended March 31, 2013 and 2012, the Company recorded stock-based compensation expense of $251,292 and $96,931, respectively, related to vested employee stock options, $86,783 and $92,015, respectively, related to unvested employee stock options, $33,739 and $19,083, respectively, related to vested non-employee stock options, and $25,210 and $8,030, respectively, related to unvested non-employee stock options.

Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable.  The related expense is recognized when the performance commitment is reached.

A summary of the Company’s stock option plans as of March 31, 2013, and changes during the six months then ended is presented below:

	Six Months Ended March 31, 2013
	Number of			Weighted Average
	Options			Exercise Price
Options outstanding at September 30, 2012		3,220,000		$	4.12
Options granted		520,000			1.71
Options expired		-			-
Options cancelled		(1,200,000	)		4.09
Options outstanding at March 31, 2013		2,540,000		$	3.64
Options exercisable at March 31, 2013		499,996		$	2.95

Changes in the Company’s unvested options for the six months ended March 31, 2013 are summarized as follows:

	Six Months Ended March 31, 2013
	Number of			Weighted Average
	Options			Exercise Price
Non-vested options at September 30, 2012		3,103,334		$	4.12
Options granted		520,000			1.71
Options vested		(383,330	)		4.34
Options cancelled		(1,200,000	)		4.09
Non-vested options at March 31, 2013		2,040,004		$	3.82

	Options Outstanding						Options Exercisable
			Remaining
			Average		Weighted				Weighted
Range of			Contractual		Average				Average
Exercise	Number		Life		Exercise		Number		Exercise
Price	Outstanding		(In Years)		Price		Exercisable		Price
$        4.68		75,000		3.63	$	4.68		25,000	$	4.68
4.25		385,000		8.63		4.25		194,997		4.25
4.20		10,000		8.63		4.20		3,333		4.20
4.09		1,550,000		8.87		4.09		16,666		4.09
1.71		520,000		8.63		1.71		260,000		1.71
Totals		2,540,000		8.64	$	3.64		499,996	$	2.95