Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS’ DEFICIT

v2.4.0.8
STOCKHOLDERS’ DEFICIT
 9 Months Ended
Jun. 30, 2013
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]
5.
STOCKHOLDERS’ DEFICIT
 
Common and Preferred Stock
 
As of June 30, 2013, the Company is authorized to issue 165,000,000 shares of stock of which 150,000,000 are common stock at par value of $0.001 per share and the remaining 15,000,000 are blank-check preferred stock, with a par value of $0.001 per share. Our Board of Directors is authorized to provide for one or more series of preferred stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers, if any, of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of preferred stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.
 
As of June 30, 2013, 49,843,710 shares of common stock were issued and outstanding and no shares of preferred stock were issued or outstanding.
 
As of June 30, 2013, CNS California is authorized to issue 100,000,000 no par value shares of two classes of stock, 80,000,000 of which was designated as common shares and 20,000,000 of which was designated as preferred shares.
 
As of June 30, 2013, Colorado CNS Response, Inc. is authorized to issue 1,000,000 no par value shares of common stock.
 
As of June 30, 2013, Neuro-Therapy Clinic, Inc., a wholly-owned subsidiary of Colorado CNS Response, Inc., is authorized to issue ten thousand (10,000) shares of common stock, no par value per share.
 
On September 19, 2012 the BluMont Capital Corp. ITF Northern Rivers Innovation RSP Fund converted $1,900 of their $50,000 August 2012 Note to 40,000 shares of common stock at a conversion price of $0.04718 per share.
 
As a condition of the November 28, 2012 closing of the 2012 Bridge Financing, the Company also entered into Employment Compensation Forfeiture and Exchange Agreements (“Forfeiture and Exchange Agreements”) with three of its executive officers, George Carpenter, Paul Buck and Michael Darkoch. Pursuant to these agreements, the executives agreed to waive receipt of and release the Company from the payment of 50% of their salaries accrued from August 31, 2010 to September 30, 2012(amount waived was $56,250 for George Carpenter, $66,083 for Paul Buck and $43,333 for Michael Darkoch), in consideration for which the Company agreed to issue to such executives a certain number of shares of its common stock (56,250 for George Carpenter, 66,083 for Paul Buck and 43,333 for Michael Darkoch). Any remaining accrued salary remains outstanding and shall be paid (i) from time to time at the discretion of the Board of Directors to the extent the Board of Directors determines that such payment will not jeopardize the ability of the Company to continue as a going concern; or (ii) upon the closing of any single financing transaction (including a single financing transaction that contemplates multiple closings) in which the Company receives proceeds of $5 million or more. Additionally, where applicable, the executives agreed to waive receipt of and release the Company from the payment of any previously approved bonus award. Under the agreements, the Company agreed to indemnify the executives for all federal and state income tax payable and actually paid by the executive related directly to the receipt of the common stock, the per share value of which is not expected to be more than the conversion price of the October 2012 Notes which is $0.04718 per share.
 
From January 18, 2013 through June 30, 2013 the following note holders have converted their notes into shares of common stock.
 
Conversion
Date
 
Bridge
Note
Originated
 
Note #4
Reference
 
Name
 
Note
Tranche
 
Note
Amount
 
Conversion Price per Shar
 
Total
Shares
 
01/18/13
 
11/30/12
 
(20)
 
Larry Hopfenspirger
 
October 2012
 
$
60,000
 
 
0.04718
 
 
1,287,303
 
01/25/13
 
11/28/12
 
(01)
 
John Pappajohn
 
October 2012
 
 
200,000
 
 
0.04718
 
 
4,300,551
 
01/31/13
 
08/21/12
 
(15)
 
Tierney Family Trust
 
October 2012
 
 
100,000
 
 
0.04718
 
 
2,205,914
 
01/31/13
 
09/06/12
 
(15)
 
Tierney Family Trust
 
October 2012
 
 
100,000
 
 
0.04718
 
 
2,197,435
 
01/31/13
 
10/01/10
 
(03)
 
SAIL Venture Partners, LP
 
October 2010
 
 
250,000
 
 
1.00000
 
 
303,313
 
01/31/13
 
02/28/11
 
(03)
 
SAIL Venture Partners, LP
 
January 2011
 
 
187,500
 
 
1.00000
 
 
220,454
 
01/31/13
 
04/15/11
 
(03)
 
SAIL Venture Partners, LP
 
January 2011
 
 
250,000
 
 
1.00000
 
 
291,063
 
01/31/13
 
04/25/11
 
(03)
 
SAIL Venture Partners, LP
 
January 2011
 
 
125,000
 
 
1.00000
 
 
145,219
 
01/31/13
 
02/28/11
 
(03)
 
SAIL 2010 Co-Investment Partners, LP
 
January 2011
 
 
62,500
 
 
1.00000
 
 
73,485
 
01/31/13
 
04/15/11
 
(03)
 
SAIL 2010 Co-Investment Partners, LP
 
January 2011
 
 
250,000
 
 
1.00000
 
 
291,063
 
01/31/13
 
04/25/11
 
(03)
 
SAIL 2010 Co-Investment Partners, LP
 
January 2011
 
 
125,000
 
 
1.00000
 
 
145,219
 
01/31/13
 
08/17/12
 
(03)
 
SAIL Holding LLC
 
October 2012
 
 
100,000
 
 
0.04718
 
 
2,208,034
 
01/31/13
 
10/26/12
 
(03)
 
SAIL Venture Partners II, LP
 
October 2012
 
 
50,000
 
 
0.04718
 
 
1,085,471
 
01/31/13
 
10/26/12
 
(03)
 
SAIL 2010 Co-Investment Partners, LP
 
October 2012
 
 
20,000
 
 
0.04718
 
 
434,189
 
01/31/13
 
10/26/12
 
(03)
 
SAIL 2011 Co-Investment Partners, LP
 
October 2012
 
 
20,000
 
 
0.04718
 
 
434,189
 
02/07/13
 
08/22/12
 
(10)
 
BluMont Northern Rivers Fund
 
October 2012
 
 
21,700
 
 
0.04718
 
 
480,000
 
03/21/13
 
11/28/12
 
(01)
 
John Pappajohn
 
October 2012
 
 
300,000
 
 
0.04718
 
 
6,538,258
 
03/26/13
 
08/22/12
 
(10)
 
BluMont Northern Rivers Fund
 
October 2012
 
 
16,400
 
 
0.04718
 
 
366,629
 
03/27/13
 
11/28/12
 
(08)
 
George Carpenter
 
October 2012
 
 
50,000
 
 
0.04718
 
 
1,091,299
 
03/28/13
 
11/06/12
 
(13)
 
AlphaNorth Offshore, Inc.
 
October 2012
 
 
39,100
 
 
0.04718
 
 
858,415
 
04/11/13
 
08/22/12
 
(07)
 
Meyer Proler MD
 
October 2012
 
 
50,000
 
 
0.04718
 
 
1,121,238
 
04/30/13
 
11/29/12
 
(18)
 
Mark & Jill Oman
 
October 2012
 
 
250,000
 
 
0.04718
 
 
5,500,212
 
04/30/13
 
11/29/12
 
(04)
 
Andy Sassine
 
October 2012
 
 
25,000
 
 
0.04718
 
 
550,021
 
05/16/13
 
11/06/12
 
(13)
 
Alpha North Offshore, Inc.
 
October 2012
 
 
60,900
 
 
0.04718
 
 
1,352,181
 
06/14/13
 
10/19/12
 
(16)
 
The Follman Trust
 
October 2012
 
 
200,000
 
 
0.04718
 
 
4,491,310
 
06/14/13
 
10/25/12
 
(17)
 
Extuple Limited Partnership
 
October 2012
 
 
50,000
 
 
0.04718
 
 
1,121,237
 
06/14/13
 
11/28/12
 
(10)
 
Argyris & Ann Vassiliou
 
October 2012
 
 
25,000
 
 
0.04718
 
 
556,114
 
06/14/13
 
11/29/12
 
(19)
 
Ronald Dozoretz MD
 
October 2012
 
 
100,000
 
 
0.04718
 
 
2,223,929
 
 
 
 
 
 
 
 
 
Total
 
$
3,088,100
 
 
 
 
 
41,873,745
 
   
From February 22, 2013 through April 1, 2013, 19 accredited investors purchased an aggregate of 4,180,000 shares of common stock at a price of $0.25 per share in a private placement. The Company received gross aggregate cash proceeds of $1,045,000. The investors included two affiliates, one of which is the Tierney Family Trust of which Mr. Thomas Tierney, a Director of the Company, is a trustee. The Tierney Family Trust acquired 400,000 shares of common stock for which the Company received cash proceeds of $100,000. A second affiliate investor is Paul Buck, the Company’s CFO, who acquired 50,000 shares of common stock for which the Company received cash proceeds of $12,500.
 
On March 26, 2013 the Board resolved to amend the Company’s Charter in order to:
 
1)
increase the number of shares of common stock authorized for issuance under the Charter from 100,000,000 to 150,000,000; and
2)
create one or more series of preferred stock, par value $0.001 per share, and authorize 15,000,000 shares of such preferred stock for issuance.
This amendment to the Charter was approved by more than 80% of the shareholders eligible to vote at the annual meeting of shareholders which was held on May 23, 2013.
 
From May 23, 2013 through June 27, 2013, 9 accredited investors purchased an aggregate of 1,710,000 shares of common stock at a price of $0.25 per share pursuant to a private placement. The Company received gross aggregate cash proceeds of $427,500.
 
Stock-Option Plan
 
On August 3, 2006, CNS California adopted the CNS California 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan provides for the issuance of awards in the form of restricted shares, stock options (which may constitute incentive stock options (ISO) or non-statutory stock options (NSO), stock appreciation rights and stock unit grants to eligible employees, directors and consultants and is administered by the board of directors. A total of 333,334 shares of stock were initially reserved for issuance under the 2006 Plan.
 
The 2006 Plan initially provided that in any calendar year, no eligible employee or director shall be granted an award to purchase more than 100,000 shares of stock. The option price for each share of stock subject to an option shall be (i) no less than the fair market value of a share of stock on the date the option is granted, if the option is an ISO, or (ii) no less than 85% of the fair market value of the stock on the date the option is granted, if the option is a NSO; provided, however, if the option is an ISO granted to an eligible employee who is a 10% shareholder, the option price for each share of stock subject to such ISO shall be no less than 110% of the fair market value of a share of stock on the date such ISO is granted. Stock options have a maximum term of ten years from the date of grant, except for ISOs granted to an eligible employee who is a 10% shareholder, in which case the maximum term is five years from the date of grant. ISOs may be granted only to eligible employees. 
 
On March 3, 2010, the Board of Directors approved an amendment to the 2006 Plan which increased the number of shares reserved for issuance under the 2006 plan from 333,334 to 666,667 shares of stock. The amendment also increased the limit on shares issued within a calendar year to any eligible employee or director from 100,000 to 133,333 shares of stock. The amendment was approved by shareholders at the annual meeting held on April 27, 2010.
 
On March 3, 2010, the Board of Directors also approved the grant of 305,000 options to staff members, directors, advisors and consultants, of which 288,334 were in fact granted. For staff members the options will vest equally over a 48 month period while for directors, advisors and consultants the options will vest equally over a 36 month period. The effective grant date for accredited investors was March 3, 2010 and the exercise price of $16.50 per share was based on the quoted closing share price of the Company’s stock at the time of grant. For non-accredited investors the grant date will be determined at some time after obtaining a permit from the State of California allowing the granting of options to non-accredited investors. This permit was granted by the State of California in July 2010. No options have been granted to non-accredited investors at this time.
 
On March 11, 2011, the Board of Directors also approved an additional grant of 15,834 options to staff members of the Company. The options will vest equally over a 48 month period. The effective grant date for these accredited investors was March 11, 2011 and the exercise price of $14.10 per share was based on the quoted closing share price of the Company’s stock on March 11, 2011.
 
On March 22, 2012, our Board of Directors approved the CNS Response, Inc. 2012 Omnibus Incentive Compensation Plan (the “2012 Plan”), reserved 333,334 shares of stock for issuance and approved the grant of options to purchase 42,670 shares of common stock pursuant to such plan at an exercise price of $3.00 per share, including options to purchase 8,334 shares to each of our directors Zachary McAdoo and Maurice DeWald.
 
On December 10, 2012, the Board approved the amendment of the Company’s 2012 Omnibus Incentive Compensation Plan (the “2012 Plan”) to increase the shares authorized for issuance under the 2012 Plan from 333,334 shares to 5,500,000 shares and granted to each of its three existing members as well as to each of the four New Board Members options to purchase 250,000 shares of its common stock pursuant to the 2012 Plan at an exercise price of $0.04718 per share. The options vest evenly over 36 months starting from the date of grant. The Board furthermore granted to each of the five former directors who had departed the Board effective November 30, 2012, (George Carpenter, Henry Harbin, George Kallins, David Jones, and Maurice DeWald), options to purchase 25,000 shares of its common stock pursuant to the 2012 Plan at an exercise price of $0.04718 per share. These options to former directors are fully vested. Finally, the Board granted to the Company’s executive officers options to purchase shares of its common stock pursuant to the 2012 Plan at an exercise price of $0.04718 per share as follows: George Carpenter 1,200,000 shares, Paul Buck 1,400,000 shares and Michael Darkoch 920,000 shares. These options vest in increments of 12.5% at the beginning of each quarter starting from the date of grant.
 
Based on the volume of shares traded on the open market, during the period October 1, 2012 through to December 10, 2012, the date of the option grant, management judged that the Company’s stock was not actively traded as only $15,000 worth of stock was traded on 11 of 48 trading days during this period at prices ranging from $0.76 to $0.83. In a contemporaneous transaction, Senior Secured Convertible Notes (“October 2012 Notes”) with a conversion price of $0.04718 were purchased by accredited third party investors. Given the very low volume of stock which was not actively traded, compared to the volume of October 2012 Notes purchased, management’s judgment was that the pricing of the October 2012 Notes at $0.04718 represented a better determinant of fair value of the Company’s common stock and the options granted on December 10, 2012.
 
On January 14, 2013, the Board granted options to purchase 1,960,000 shares of common stock to members of staff and 1,600,000 share of common stock to key consultants. The options granted to staff vest evenly over 48 months starting on the date of grant. The options granted to consultants vest evenly over 36 months starting on the date of grant. All these options have an exercise price of $0.04718 per share.
 
Based on the volume of shares traded on the open market, during the period October 1, 2012 through to January 14, 2013, the date of the option grant, management judged that the Company’s stock was not actively traded as only $36,700 worth of stock was traded on 21 of 50 trading days during this period at prices ranging from $0.49 to $2.50. There had been a recent transaction which closed on November 30, 2012 whereby $2 million of Senior Secured Convertible Notes (“October 2012 Notes”) with a conversion price of $0.04718 were purchased by accredited third party investors. Given the very low volume of stock which was not actively traded, compared to the volume of October 2012 Notes purchased, management’s judgment was that the pricing of the October 2012 Notes at $0.04718 represented a better determinant of fair value of the Company’s common stock and the options granted on January 14, 2013.
 
On March 26, 2013, the Board approved the amendment of the Company’s 2012 Plan to increase the shares authorized for issuance under the 2012 Plan from 5,500,000 shares to 15,000,000 shares. The Board also granted options to purchase 250,000 shares of common stock to Thomas Tierney upon his election to be Chairman of the Board of Directors. These options granted to Mr. Tierney vest evenly over 36 months starting on the date of grant and have an exercise price of $0.25 per share.
 
Based on the volume of shares traded on the open market, during the period January 1, 2013 through to March 26, 2013, the date of the option grant, management judged that the Company’s stock was not actively traded as only $283,400 worth of stock was traded on 22 of 58 trading days during this period at prices ranging from $0.46 to $0.83. There was a contemporaneous transaction whereby $695,000 worth of a $2.5 million private placement offering of common stock at a price of $0.25 per share were purchased by accredited third party investors. Given the low volume of stock which was not actively traded, compared to the volume of the private placement of common stock, management’s judgment was that the pricing of the private placement of common stock at $0.25 per share represented a better determinant of fair value of the Company’s common stock and the options granted on March 26, 2013.
 
The 2012 Plan, as amended, was approved by our shareholders at the 2013 annual meeting held on May 23, 2013.
 
As of June 30, 2013, 70,825 options were exercised and there were 501,924 options and 6,132 restricted shares outstanding under the amended 2006 Plan leaving 87,786 shares which will not be issued as the 2006 Plan is frozen. 9,247,670 options have been issued under the 2012 Plan, none of which have been exercised, leaving 5,752,330 available for issuance.
 
Stock-based compensation expense is recognized over the employees’ or service provider’s requisite service period, generally the vesting period of the award. Stock-based compensation expense included in the accompanying statements of operations for the three months and nine months ended June 30, 2013 and 2012 is as follows:
 
 
 
For the three months ended
June 30,
 
 
 
2013
 
2012
 
Cost of Neurometric Services revenues
 
$
2,700
 
$
2,500
 
Research
 
 
21,900
 
 
24,000
 
Product Development
 
 
33,600
 
 
19,000
 
Sales and marketing
 
 
30,300
 
 
49,500
 
General and administrative
 
 
205,000
 
 
245,200
 
Total
 
$
293,500
 
$
340,200
 
  
 
 
For the nine months ended
June 30,
 
 
 
2013
 
2012
 
Cost of Neurometric Services revenues
 
$
7,900
 
$
7,600
 
Research
 
 
70,800
 
 
75,200
 
Product Development
 
 
82,600
 
 
53,600
 
Sales and marketing
 
 
129,400
 
 
147,400
 
General and administrative
 
 
696,300
 
 
726,900
 
Total
 
$
987,000
 
$
1,010,700
 
 
Total unrecognized compensation as of June 30, 2013 amounted to $1,063,500.
 
A summary of stock option activity is as follows:
 
 
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Outstanding at September 30, 2012
 
 
546,746
 
$
17.08
 
Granted
 
 
5,395,000
 
 
0.04718
 
Exercised
 
 
-
 
 
-
 
Forfeited
 
 
(2,152)
 
 
14.10
 
Outstanding at December 31, 2012
 
 
5,939,594
 
$
1.61
 
Granted
 
 
3,810,000
 
 
0.06
 
Exercised
 
 
-
 
 
-
 
Forfeited
 
 
-
 
 
-
 
Outstanding at March 31, 2013
 
 
9,749,594
 
$
1.00
 
Granted
 
 
-
 
 
-
 
Exercised
 
 
-
 
 
-
 
Forfeited
 
 
-
 
 
-
 
Outstanding at June 30, 2013
 
 
9,749,594
 
$
1.00
 
 
Following is a summary of the status of options outstanding at June 30, 2013:
 
Exercise
Price
 
Number
of Shares
 
Weighted
Average
Contractual
Life
 
Weighted
Average
Exercise
Price
 
$
0.04718
 
 
8,955,000
 
 
10 years
 
$
0.04718
 
$
0.25
 
 
250,000
 
 
10 years
 
$
0.25
 
$
3.00
 
 
42,670
 
 
10 years
 
$
3.00
 
$
3.60
 
 
28,648
 
 
10 years
 
$
3.60
 
$
3.96
 
 
32,928
 
 
10 years
 
$
3.96
 
$
9.00
 
 
4,525
 
 
10 years
 
$
9.00
 
$
12.00
 
 
28,535
 
 
10 years
 
$
12.00
 
$
14.10
 
 
10,000
 
 
10 years
 
$
14.10
 
$
15.30
 
 
1,373
 
 
10 years
 
$
15.30
 
$
16.50
 
 
262,441
 
 
10 years
 
$
16.50
 
$
17.70
 
 
953
 
 
10 years
 
$
17.70
 
$
24.00
 
 
4,667
 
 
10 years
 
$
24.00
 
$
26.70
 
 
32,297
 
 
10 years
 
$
26.70
 
$
28.80
 
 
11,767
 
 
10 years
 
$
28.80
 
$
32.70
 
 
83,790
 
 
10 years
 
$
32.70
 
 
Total
 
 
9,749,594
 
 
 
 
$
1.00
 
 
We have entered into agreements on June 3, 2011 with the majority of our 2006 Plan option holders pursuant to which holders of options to purchase an aggregate of 439,689 shares of our common stock, at exercise prices ranging from $3.60 per share to $32.70 per share, have agreed to amend their options to permit exercise only in cash and to limit the period during which the options may be exercised post-termination to 90 days (for employees) and twelve months (for consultants).
 
We have agreed to freeze any further grants or exercises of securities under the 2006 Plan and adopt the 2012 Stock Incentive Plan, which was approved at the 2013 Annual Meeting of Stockholders held on May 23, 2013.
 
Warrants to Purchase Common Stock
 
The warrant activity for the period starting October 1, 2011, through June 30, 2013 are described as follows:
 
Warrants
 
Exercise
Price
 
Issued, Surrendered or Expired in Connection With:
 
 
980,390
 
 
 
 
Warrants outstanding at October 1, 2011
 
 
 
 
 
 
 
 
 
 
613,782
 
$
3.00
 
As a result of the issuance of October 2011 Notes at a conversion of $3.00 and associated warrants to purchase common stock at an exercise price of $3.00, the ratchet provision in the October and January 2011 Notes was triggered with the resultant adjustment in the number of shares convertible at the lowered conversion price of $3.00 down from $9.00 and the consequential adjustment in the number of warrants issued to the October and January Note Holders.
 
 
 
 
 
 
 
 
 
 
31,112
 
$
1.00
 
As mentioned above the ratchet provision in the issued placement agent warrants was also triggered with the resultant adjustment in the number of warrants being issued to the placement agents. Effective on November 20, 2012 the holders of placement agent warrants agreed to remove the ratchet feature in exchange for lowering the conversion price to $1.00 per share down from $3.00 per share. This resulted in the elimination of warrant liabilities as of such date.
 
 
 
 
 
 
 
 
 
 
(2,823)
 
$
0.30
 
Warrants were surrendered in a cash exercise for 2,823 shares.
 
 
 
 
 
 
 
 
 
 
696,673
 
$
3.00
 
These warrants were issued to 11 investors who purchased notes for $2,000,000 pursuant to the 2011 Bridge Purchase Agreement described in note 4 were as follows:
1) Three October 2011 Notes in aggregate principal amount of $750,000, and warrants to purchase 250,002 shares were issued to John Pappajohn, a director of the Company.
2) Two October 2011 Notes in aggregate amount of $80,000 were issued to accredited investors, who had previously invested in the Company, together with warrants to purchase 26,667 shares.
3) An October 2011 Note in the principal amount of $250,000, and a warrant to purchase 83,334 shares were issued to the Zanett Opportunity Fund, an entity affiliated with Zachary McAdoo, who was subsequently appointed a director of the Company.
4) Three October 2011 Notes in aggregate amount of $180,000 were issued to accredited investors, who had previously invested in the Company, together with warrants to purchase 60,001 shares.
5) An October 2011 Note in the principal amount of $40,000, and a warrant to purchase 13,334 shares were issued to the Zanett Opportunity Fund, an entity affiliated with Zachary McAdoo, who is a director of the Company.
6) A unsecured Bridge Note in the principal amount of $90,000, and a warrant to purchase 30,000 shares were issued to the Zanett Opportunity Fund, an entity affiliated with Zachary McAdoo, who is a director of the Company.
7) Four October 2011 Notes in aggregate amount of $700,000 and a warrant to purchase 233,335 shares were issued to four new investors to the company.
 
 
 
 
 
 
 
 
 
 
5,334
 
$
1.00
 
These warrants were issued to Monarch Capital who acted as placement agents in raising $80,000 from two investors who purchased October 2011 Notes pursuant to the 2011 Bridge Note January Purchase Agreement described in Note 4. Effective on November 20, 2012 the holders of placement agent warrants agreed to remove the ratchet feature in exchange for lowering the conversion price to $1.00 per share down from $3.00 per share. This resulted in the elimination of warrant liabilities as of such date.
 
 
 
 
 
 
 
 
 
 
15,167
 
$
1.00
 
These warrants were issued to Innerkip Capital Management who acted as placement agents in raising $650,000 from three investors who purchased October 2011 Notes pursuant to the 2011 Bridge Note January Purchase Agreement described in Note 4. Effective on November 20, 2012 the holders of placement agent warrants agreed to remove the ratchet feature in exchange for lowering the conversion price to $1.00 per share down from $3.00 per share. This resulted in the elimination of warrant liabilities as of such date.
 
 
 
(175,195)
 
 
$0.30 to $54.0
 
Warrants expired
 
 
 
 
 
 
 
 
 
 
2,164,440
 
 
 
 
Warrants outstanding at September 30, 2012
 
 
 
 
 
 
 
 
 
 
(1,617,345)
 
$
3.00
 
Warrants forfeited pursuant to the Amended and Restated Consent, Note Amendment and Warrant Forfeiture Agreement dated October 24, 2012
 
 
127,173
 
$
0.04718
 
These warrants were issued to Monarch Capital who acted as placement agents in raising $60,000 from one investor who purchased October 2012 Notes pursuant to the 2012 Bridge Note October Purchase Agreement described in Note 4.
 
 
519,288
 
$
0.04718
 
These warrants due to be issued to Tony Pullen who acted as placement agents in raising $350,000 from three investors who purchased October 2012 Notes pursuant to the 2012 Bridge Note October Purchase Agreement described in Note 4.
 
 
152,000
 
$
0.275
 
These warrants were issued to Monarch Capital who acted as placement agents in raising $380,000 from twelve accredited investors who purchased common stock, par value $0.001 per share, in a private placement agreements dated February 20, 2013 and May 23, 2013.
 
 
100,000
 
$
0.25
 
These warrants were issued to D&D Securities Inc. in connection with the Company’s private offering to select accredited investors of shares of restricted common stock at a private of $0.25 per share, in a private placement agreement dated February 20, 2013.
 
 
 
 
 
 
 
 
 
 
1,445,556
 
 
3.13
 
Warrants outstanding at June 30, 2013
 
 
Pursuant to the Amended and Restated Consent, Note Amendment and Warrant Forfeiture Agreement dated October 24, 2012, between the Company and the holders of at least a majority in aggregate principal amount outstanding (“Majority Holders”) of each tranche of the Company’s convertible promissory notes issued (the October 2010 Notes, the January 2011 Notes, the October 2011 Notes and the February 2012 Note), all warrants issued to noteholders were forfeited.
 
Pursuant to the Agreement to Amend Placement Agent Warrants dated November 20, 2012, the placement agents who had received warrants as part of their fee associated with certain investors investing in the multiple abovementioned rounds of bridge notes agreed to remove the full ratchet provision of their warrants to purchase common stock in return for an adjustment in the exercise of those warrants from $3.00 down to $1.00. Warrants to purchase 67,170 shares of common stock were adjusted in this manner, which represents all the warrants which contained the full ratchet provision.
 
Pursuant to a Placement Agent Agreement dated April 15, 2013, the Company issued a warrant to purchase 100,000 shares of common stock to Dominick & Dominick Securities (“D&D”), Inc. dated April 15, 2013. This warrant was issued as a result of D&D placing $350,000 worth of stock at $0.25 per share with two accredited investors pursuant to our securities purchase agreement/subscription agreement dated February 20, 2013.
 
Pursuant to a Placement Agent Agreement dated January 23, 2013, the Company issued warrants to purchase 152,000 shares of common stock to Monarch Capital (“Monarch”) and its designee on June 30, 2013. These warrants were issued as a result of Monarch placing $380,000 worth of stock at $0.25 per share with 12 accredited investors pursuant to our securities purchase agreement/subscription agreements dated February 20, 2013 and May 23, 2013.
 
The fair market value of the D&D and Monarch warrants was determined using the Black Scholes Model. Based on the volume of shares traded on the open market, during the period January 1, 2013 through June 30, 2013, management concluded that the Company’s stock was not actively traded as only $319,100 worth of stock was traded on 46 of 129 trading days during this period at prices ranging from $0.49 to $2.50. During this period, we effected private placement transactions between February 20, 2013 and April 30, 2013, and subsequent private placements between May 23, 2013 and June 30, 2013. These private placements resulted in almost 5.9 million shares of common stock being issued to accredited investors at a price of $0.25 per share for an approximate aggregate amount of $1.5 million. Given the low volume of stock traded in the public market compared to the greater volume of stock issued in the private placement transactions, management’s judgment was that the $0.25 private placement stock price represented a better determinant of fair value of the Company’s common stock and the warrants issued during the April through June 2013 period than the prices quoted on the OTC Bulletin Board.
   
At June 30, 2013, there were warrants outstanding to purchase 1,445,556 shares of the Company’s common stock. The exercise price of the outstanding warrants range from $0.04718 to $9.90 with a weighted average exercise price of $3.13. The warrants expire at various times starting 2014 through 2018.