NOTE 7 – COMMON STOCK WARRANTS

For all warrants included within permanent equity, the Company has determined the estimated value of the warrants granted to non-employees in exchange for services and financing expenses using the Black-Scholes pricing model and the following assumptions: stock price at valuation, $0.63-$4.32; expected term of 3-5 years, exercise price of $1.50-$4.32, a risk free interest rate of 0.21-2.90 percent, a dividend yield of 0 percent and volatility of 114-276 percent. All warrants accounted for as a derivative liability have been valued using a Lattice Model as described in Note 5.

In connection with the December 30, 2010 financing, the investors received 840,000 Class I five year warrants to purchase common stock at an exercise price of $1.65 per share. The exercise price of these warrants contained certain reset provisions which required the fair value of the warrants to be reported as a liability and not in permanent equity. On the date of issuance, the Company calculated the fair value of these warrants to be $528,847. The total cash proceeds of $1,050,000 were first applied to the warrants with the remaining $521,153 being allocated to the common shares and being recorded in additional paid-in capital.

Between May 12 and August 23, 2011, the Company issued a total of 208,333 warrants for services rendered to the Company.  As of September 30, 2013, the 208,333 warrants with a fair value of $296,882 had vested.

In connection with the December 16, 2011 financing, the investors received 305,559 Class J five year warrants to purchase common stock at an exercise price of $1.95 per share.  On the date of issuance, the Company calculated the relative fair value of these warrants to be $314,453.

On December 21, 2011, the Company issued a total of 1,042 warrants for services rendered to the Company. In connection with this issuance, the Company recognized $1,967 in consulting expense. The warrants are exercisable for five years at an exercise price of $1.95 per share.

On March 3, 2012, the Company issued a total of 116,667 fully-vested warrants with a fair market value of $220,422 as a retainer for services to be rendered to the Company.  In accordance with ASC 505-50-25, the Company recorded the fair market value of the warrants as professional fees.

On April 12, 2012, the Company issued a total of 5,000 fully-vested warrants with a fair market value of $12,775 as a retainer for services to be rendered to the Company.  In accordance with ASC 505-50-25, the Company recorded the fair market value of the warrants as professional fees.

Between May 18, 2012 and July 11, 2012, the Company issued a total of 133,333 warrants with a fair market value of $357,394 for services yet to be rendered to the Company.  The 116,667 warrants vest in two equal amounts three and six months from the date of issuance while the remaining 16,666 warrants vest over four quarters effective October 11, 2012.  For the years ended September 30, 2013 and 2012, the Company has recorded $200,159 and $157,235, respectively, in professional fees related to the warrants that have vested to date.

On June 28, 2012, the Company issued 1,059,803 replacement warrants under an incentive provision offered to investors who converted their series H warrants.  The warrants were valued at $2,663,204.  As the original warrants were issued as part of cash financing, the value of these warrants has been included as an offsetting entry within additional paid-in capital.

On September 7, 2012, the Company issued 25,000 fully-vested warrants with a fair value of $65,978 to a related party as compensation for the use of the office facilities and receptionist. Such warrants have an exercise price of $3.00 and will be exercisable for a period of five years. In accordance with ASC 505-50-25, the Company recorded the fair market value of the warrants as Professional Fees.

On October 30, 2012, the Company agreed to extend the term of the 3,995,122 common stock warrants issued to investors which were scheduled to expire on October 31, 2012 to April 30, 2013. The warrants were also amended to remove the cashless exercise provision and provided for the early termination of the extension period, at the sole discretion of the Company, in the event that the Company’s common stock trades at or above $4.50 for 5 consecutive days. The warrants are exercisable at $3.57 per share.

On March 21, 2013, the Company issued a total of 56,667 warrants with a fair market value of $232,374 for services rendered to the Company. 40,000 warrants vest equally over the next four quarters from the date of issuance. 16,667 warrants vest equally over the next two quarters from the date of issuance. For the year ended September 30, 2013, the Company recorded $135,710 in consulting expense related to the portion of warrants that has vested to date. The warrants are exercisable at $4.32 and are scheduled to expire in 3 to 5 years.

On April 18, 2013, the Company converted 2,253,531 series B warrants to amended series B warrants in connection with the exercising of 1,414,995 warrants into common stock. 326,597 Series B warrants expired. The amended series B warrants issued have the exercise price raised to $6.75 per share, and the expiration date has been extended to September 30, 2014.

Below is a table summarizing the warrants issued and outstanding as of September 30, 2013:

The outstanding warrants as of September 30, 2013 have an intrinsic value of approximately $31.2 million. For the year ended September 30, 2013, the Company has expensed $335,869 related to the fair value of warrants issued for services.