Common Stock Warrants and Stock Based Compensation

12 Months Ended

Sep. 30, 2013

Compensation and Retirement Disclosure [Abstract]

Common Stock Warrants

 Common Stock Warrants. As of September 30, 2013, warrants to purchase a total of 71,194,000 shares of the Company’s Common Stock were outstanding, with a weighted average exercise price of $0.10 per share and exercise prices ranging from $0.001 per share to $0.55 per share, of which:

· 17,363,000 warrants expire in Fiscal 2014;

· 15,653,000 warrants expire in Fiscal 2015;

· 2,367,000 warrants expire in Fiscal 2016;

· 250,000 warrants expire in Fiscal 2017;

· 6,152,000 warrants expire in Fiscal 2018;

· 4,091,000 warrants expire in Fiscal 2019;

· 14,318,000 warrants expire in Fiscal 2020; and

· 1,000,000 warrants expire in Fiscal 2023.

 Stock Incentive Plans. The Company’s stockholders approved the Company’s 2006 Omnibus Incentive Plan (the “2006 Plan”), which is designed to serve as a comprehensive equity incentive program to attract and retain the services of individuals essential to the Company’s long-term growth and financial success. The 2006 Plan permits the granting of stock options (including both incentive and non-qualified stock options), stock-only stock appreciation rights, non-vested stock and non-vested stock units, performance awards of cash, stock or property, dividend equivalents and other stock grants. Upon approval of the 2006 Plan, the Company’s 2003 Stock Incentive Plan (the “2003 Plan”), 2001 Non-Qualified Stock Option Plan (the “2001 Non-Qualified Plan”), 2001 Stock Option Plan (the “2001 Plan”) and 2000 Non-Qualified Stock Option Plan (the “2000 Plan”) (collectively, the “Prior Plans”) were terminated, but existing options issued pursuant to the Prior Plans remain outstanding in accordance with the terms of their original grants. See Note 20 for a discussion of events subsequent to the reporting date related to the Company’s Stock Incentive Plans.

 As of September 30, 2013, there are no outstanding and exercisable options to purchase the Company’s Common Stock under the 2001 Plan or the 2001 Non-Qualified Option Plan. As of September 30, 2013, options to purchase 132,000 shares of the Company’s Common Stock were outstanding and exercisable under the 2003 Plan at exercise prices ranging from $13.20 to $36.20 per share, which prices reflect the one-for-ten reverse stock split of the Company’s Common Stock on August 26, 2008.

 Pursuant to an amendment of the 2006 Plan by stockholders in March 2009, the number of shares of Common Stock reserved for issuance under the 2006 Plan shall automatically increase at the beginning of each subsequent fiscal year by the lesser of 1,250,000 shares or 5% of the common stock of the Company outstanding on the last day of the preceding fiscal year. As a result, the number of shares issuable under the 2006 Plan increased by 485,000 shares in Fiscal 2010, by 1,250,000 shares in Fiscal 2011 and by 1,250,000 shares in Fiscal 2012. As of September 30, 2013, there were options to purchase 621,000 shares of the Company’s common stock outstanding and exercisable under the 2006 Plan, at exercise prices ranging from $0.09 to $13.00 per share.

 In December 2010, the Company’s Board adopted the Company’s 2010 Non-Qualified Stock Option Plan (the “2010 Plan”) under which the Company’s eligible officers, directors and employees, consultants and advisors who qualify as “accredited investors” within the meaning of Rule 501 under the Securities Act, may be granted non-incentive stock options. 18,500,000 shares of the Company’s Common Stock were reserved for issuance under the 2010 Plan, and options to purchase 18,500,000 shares of the Company’s Common Stock at an exercise price of $0.09 per share were issued to certain of the Company’s officers and directors in December 2010 pursuant to the 2010 Plan. As of September 30, 2013, there were options to purchase 15,500,000 shares of the Company’s Common Stock outstanding under the 2010 Plan, of which options to purchase 15,250,000 shares were exercisable, at an exercise price of $0.09 per share. No further grants may presently be made under the 2010 Plan. In March 2011, the Company’s stockholders approved the Company’s 2011 Omnibus Incentive Plan (the “2011 Plan”) and reserved 46,500,000 shares of Common Stock of the Company for potential issuance pursuant to the 2011 Plan. The 2011 Plan is designed to promote the interests of the Company and its stockholders by serving as a comprehensive equity incentive program to attract and retain the services of individuals capable of assuring the future success of the Company and to afford such persons an opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Company. The 2011 Plan permits grants of stock options (including both incentive and non-qualified stock options), stock-only appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance awards of cash, stock or property, other stock grants and other stock-based awards. As of September 30, 2013, there were options to purchase 35,499,000 shares of the Company’s Common Stock outstanding under the 2011 Plan, at exercise prices ranging from $0.05 to $0.155 per share, of which options to purchase 27,306,000 shares were exercisable at September 30, 2013. The aggregate number of shares of Common Stock issuable under all stock-based awards that may be made under the 2011 Plan at September 30, 2013 is 11,001,000 shares.

 The exercise prices of stock options granted during Fiscal 2013 and Fiscal 2012 were equal to the closing price of the Company’s Common Stock at the date of grant. The following table summarizes stock options outstanding as of September 30, 2013 as well as activity during the two-fiscal year period then ended:

	No. of Shares			Weighted Average Exercise Price
Options outstanding at October 2, 2011		57,984,000		$	0.26
Granted		7,765,000			0.12
Exercised		(2,541,000	)		0.10
Expired		(8,451,000	)		0.32
Options outstanding at September 30, 2012		54,757,000		$	0.24
Granted		6,985,000			0.08
Exercised		(1,131,000	)		0.09
Expired		(8,859,000	)		0.35
Options outstanding at September 30, 2013		51,752,000		$	0.20
Options exercisable at September 30, 2013		43,309,000		$	0.22

 For Fiscal 2013 and Fiscal 2012, the weighted-average grant-date fair value of options granted was $0.08 for both fiscal years. At September 30, 2013, the aggregate intrinsic value of non-vested options outstanding and options exercisable was $0 and $0, respectively. For Fiscal 2013, options to purchase 1,131,000 shares were exercised with an aggregate intrinsic value of $17,000. The intrinsic value of a stock option was the amount by which the market value of the underlying stock exceeds the exercise price of the option, determined as of the date of the option exercise. At September 30, 2013, the weighted-average remaining contractual life of options outstanding and exercisable was 7.7 years and 7.4 years, respectively.

 A summary of outstanding options and exercisable options under the Company’s 2001, 2003, 2006, 2010 and 2011 Qualified and Non-Qualified Plans at September 30, 2013 is shown below.  

		Outstanding Options									Exercisable Options
Range of Exercise Prices		Number		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price			Aggregate Intrinsic Value		Number		Weighted Average Exercise Price		Aggregate Intrinsic Value
$	0.05 to 0.16		51,432,000		7.7	$	0.12	$		-		42,989,000	$	0.12	$	-
	0.17 to 1.70		127,000		5.0		0.42			-		127,000		0.42		-
	1.71 to 14.10		62,000		4.3		13.00			-		62,000		13.00		-
	14.11 to 22.5		45,000		1.7		21.83			-		45,000		21.83		-
	22.51 to 36.2		86,000		1.1		31.13			-		86,000		31.13		-
			51,752,000									43,309,000

 The aggregate intrinsic values set forth in the above table, which represent the total pre-tax intrinsic values, are based on the closing stock price of the Company’s common stock of $0.05 as of September 30, 2013, the last trading date prior to September 30, 2013, and assuming all the optionees had exercised their options as of that date.

At September 30, 2013 the total compensation costs related to non-vested option awards not yet recognized was $409,000 and the weighted-average remaining vesting period of non-vested options at September 30, 2013 was approximately one year. Such amounts do not include the cost of new options that may be granted in future periods or any changes in the Company’s forfeiture rate.

Previously granted options to purchase 8,443,000 shares of the Company’s Common Stock with a weighted average exercise price of $0.10 per share and a weighted average fair value of $0.07 per share were non-vested as of September 30, 2013. Total stock-based compensation expense for continuing operations during Fiscal 2013 was approximately $629,000, of which $118,000 was charged to research and development expense and $511,000 was charged to general and administrative expense. Total stock-based compensation expense continuing operations during Fiscal 2012 was approximately $471,000, of which $12,000 was charged to research and development expense and $459,000 was charged to general and administrative expense.

 The total amount of compensation expense related to option awards not yet recognized at September 30, 2013 was $409,000. The amount of compensation expense related to such existing option awards expected to be recognized is as follows:

FY 2014	$	275,000
FY 2015		111,000
FY 2016		23,000
Total	$	409,000

 However, such amounts do not include the cost of new options that may be granted in future periods.

 Employee Stock Benefit Plan. In Fiscal 1982, the Company established an employee retirement plan, the ESBP, which is effective for Fiscal 1982 and thereafter. This plan provides for annual contributions to the Company’s Employee Stock Bonus Trust (“SBT”) to be determined by the Board of Directors and which will not exceed 15% of total payroll. At the discretion of the Trustee, the SBT will purchase Common Stock at fair market value or other interest-bearing securities or investments for the accounts of individual employees who, as of September 30, 2013, will gain a vested interest of 20% in their accounts after their first year of service, and 20% each year of service thereafter, until fully vested after five years of service. Employees who attain age 65 will be fully vested in contributions to their account regardless of years of service. Pursuant to the ESBP provision, vesting requirements are met as services are performed and fulfilled at each fiscal year end. That portion of cash or stock held in an employee’s account and not vested at termination of employment will be redistributed in accordance with a prearranged formula. Management believes that the contributions made by the Company to the SBT, to the extent they relate to U.S. government cost-plus-fixed-fee contracts, will be reimbursable by the U.S. government. Relating to Fiscal 2013 the Company anticipated making a contribution of 9.1 million shares of Common Stock with an estimated market value of $272,000, which will be contributed in Fiscal 2014.  Relating to Fiscal 2012 the Company anticipated making a contribution of 6.0 million shares of Common Stock with an estimated market value of $600,000, which was contributed in Fiscal 2013.

 Deferred Compensation Plan. In September 2002, the Company established a deferred compensation plan, the Non-Qualified Deferred Compensation Plan, for certain key employees with long-term service with the Company. Annual contributions of Common Stock of the Company were made to a Rabbi Trust under such plan to be held for the benefit of the deferred compensation plan participants. The Board of Directors did not authorize a contribution to the Non-Qualified Deferred Compensation Plan for Fiscal 2012. During Fiscal 2013 the Board of Directors authorized a contribution of 14,000 shares to the Non- Qualified Deferred Compensation Plan. Participants’ potential distributions from the Rabbi Trust represent unsecured claims against the Company. The Rabbi Trust was established by the Company and is subject to creditors’ claims. Shares in this plan may be distributed to each plan beneficiary when they retire from service with the Company. At September 30, 2013, 44,000 shares of the Company’s Common Stock were in the Rabbi Trust.

 Executive Salary Continuation Plan. In February 1996, the Company established a deferred compensation plan (the “ESCP”) for select key employees of the Company. Benefits payable under the ESCP are established on the basis of years of service with the Company, age at retirement and base salary, subject to a maximum benefits limitation of $137,000 per year for any individual. The ESCP is an unfunded plan. The recorded liability for future expense under the ESCP is determined based on expected lifetime of participants using Social Security mortality tables and discount rates comparable to that of rates of return on high quality investments providing yields in amount and timing equivalent to expected benefit payments. At the end of each fiscal year, the Company determines the assumed discount rate to be used to discount the ESCP liability. The Company considered various sources in making this determination for Fiscal 2013, including the Citigroup Pension Liability Index, which at September 30, 2013 was 4.92%. Based on this review, the Company used a 4.92% discount rate for determining the ESCP liability at September 30, 2013. There are presently two retired executives of the Company who are receiving lifetime benefits aggregating $185,000 per annum under the ESCP. The current and long-term portions of the ESCP liability at September 30, 2013 are $185,000 and $957,000, respectively, for an aggregate liability of $1,142,000. The current and long-term portions of the ESCP liability at September 30, 2012 were $185,000 and $975,000, respectively, for an aggregate liability of $1,160,000.