STOCKHOLDERS' EQUITY

12 Months Ended

Sep. 30, 2011

Notes to Financial Statements

STOCKHOLDERS' EQUITY

During the year ended September 30, 2009, the Company issued 3,316,438 shares of common stock in payment of invoices totaling $1,561,343. Common stock was also issued to pay interest and principal on the convertible debt. See Note 2. In addition, the balance of the shares issued to the Company’s President in September 2008 were expensed at a cost of $200,000. An additional 1,030,928 shares were issued to the President in March 2009 at a cost of $200,000. An additional 12,672 shares were issued to an employee for expenses. The shares were expensed at a cost of $3,168.

In November 2008, the Company extended its licensing agreement for Multikine with Orient Europharma. The new agreement extends the Multikine collaboration to also cover South Korea, the Philippines, Australia and New Zealand. The licensing agreement initially focuses on the areas of head and neck cancer, nasopharyngeal cancer and potentially cervical cancer. The agreement expires 15 years after the commencement date which is defined as the date of the first commercial sale of Multikine in any country within the territory. In connection with the agreement, Orient Europharma purchased 1,282,051 shares of common stock at a cost of $0.39 per share, for a total to the Company, after expenses, of $499,982.

On December 30, 2008, the Company entered into an Equity Line of Credit agreement as a source of funding for the Company. For a two-year period, the agreement allows the Company, at its discretion, to sell up to $5 million of the Company’s common stock at the volume weighted average price of the day minus 9%. The Company may request a drawdown once every ten trading days, although the Company is under no obligation to request any draw-downs under the equity line of credit. The equity line of credit expired on January 6, 2011 and no draw-downs were made.

On March 6, 2009, the Company entered into a licensing agreement with Byron Biopharma LLC (“Byron”) under which the Company granted Byron an exclusive license to market and distribute the Company’s cancer drug Multikine in the Republic of South Africa.  The Company has existing licensing agreements for Multikine with Teva Pharmaceuticals and Orient Europharma. Pursuant to the agreement, Byron will be responsible for registering the product in South Africa.  Once Multikine has been approved for sale, the Company will be responsible for manufacturing the product, while Byron will be responsible for sales in South Africa.  Revenues will be divided equally between the Company and Byron. To maintain the license Byron, among other requirements, must make milestone payments to the Company totaling $125,000 on or before March 15, 2010. This payment was received in March 2010. On March 30, 2009, and as further consideration for its rights under the licensing agreement, Byron purchased 3,750,000 Units from the Company at a price of $0.20 per Unit. Each Unit consisted of one share of the Company’s common stock and two warrants. Each warrant entitles the holder to purchase one share of the Company’s common stock at a price of $0.25 per share. The warrants are exercisable at any time prior to March 6, 2016. The shares of common stock included as a component of the Units were registered by the Company under the Securities Act of 1933. The Units were accounted for as an equity transaction using the Black Scholes method to value the warrants. The fair value of the warrants was calculated to be $1,015,771 and was recorded as both a debit and a credit to additional paid-in capital. No warrants were exercised during the year ended September 30, 2010. During the year ended September 30, 2011, 1,000,000 warrants were exercised. The Company received $250,000 from the exercise of these warrants. As of September 30, 2011, 6,500,000 warrants remain outstanding.

In late June and early July of 2009, the Company raised $6,139,739, less associated costs of $296,576 from the sale of 15,349,346 shares of common stock, at a price of $0.40 per share, to private investors. The Company also issued 10,284,060 warrants, exercisable at $0.50 per share to the investors at a fair value of $2,775,021. At September 30, 2009, the fair value of the warrants was $15,223,759. During the year ended September 30, 2010 and 2011, 8,813,088 and -0- warrants were exercised, respectively. As of September 30, 2011, the fair value of the 1,470,972 remaining warrants was $294,194 and was shown on the Company’s balance sheet as a derivative liability.

As a result of the June 2009 financing, the conversion price of the Series K notes and the exercise price of the Series K warrants were reduced to $0.40 per share since the shares sold by the Company were below the conversion price of the notes and the exercise price of the warrants. Also in conjunction with the June 2009 financing, the exercise price of warrants issued in a prior financing was reset to $0.40 per share, resulting in the issuance of an additional 1,166,667 shares of common stock. The issuance of these shares was accounted for as a dividend of $466,667 for the year ended September 30, 2009.

On July 27, 2009, 215,000 shares were issued to employees at $0.39. These shares will vest at specified milestones; 20% of them had vested by September 30, 2009. During the year ended September 30, 2009, $16,770 of the cost was expensed. The remaining 80% of the shares vested during the year ended September 30, 2010, and $67,080 was expensed. In addition, on August 5, 2009, 65,785 shares were issued at $0.38 to the Board of Directors. The cost of $24,998 was expensed during the year ended September 30, 2009.

In late August of 2009, the Company raised $4,852,995, net of associated costs of $248,037 through the sale of 10,784,435 shares at $0.45 per share to private investors. The Company also issued 5,392,217 Series C warrants at $0.55 per share to the investors at a fair value of $1,704,340. As of September 30, 2009, the fair value of these warrants was $8,088,328. On September 30, 2010, these warrants were shown as a derivative liability of $2,480,420. No Series C warrants were exercised during the year ended September 30, 2010. During the year ended September 30, 2011, 757,331 Series C warrants were exercised. The Company received $416,532 from the exercise of these warrants. As of September 30, 2011, 4,634,886 of the Series C warrants remained outstanding. As of September 30, 2011, the fair value of the remaining warrants was $926,977 and is shown on the Company’s balance sheet as a derivative liability.

In September of 2009, the Company raised an additional $20,000,000, net of associated costs of $1,423,743 through the sale of 14,285,715 shares at $1.40 per share to private investors. The Company also issued 4,714,284 Series D warrants, exercisable at $1.50 per share to the investors at a fair value of $3,488,570. The Company also issued 714,286 Series E warrants, exercisable at $1.75 per share to the placement agent at a fair value of $642,857. As of September 30, 2009, the fair value of these warrants was $5,694,285. As of September 30, 2010, the fair value of these warrants is shown as a derivative liability of $660,000. No Series D and E warrants were exercised during the year ended September 30, 2010. On September 21, 2011, all 4,714,284 Series D warrants expired. As of September 30, 2011, all of the Series E warrants remained outstanding, with a fair value of $64,286 which is shown on the Company’s balance sheet as a derivative liability.

During the year ended September 30, 2010, warrants and options were exercised resulting in the issuance of 2,011,174 shares of common stock at prices ranging from $0.56 to $0.75. The Company received a total of $1,413,307 from the exercise of these warrants and options. During the year ended September 30, 2011, options were exercised resulting in the issuance of 29,268 shares of common stock at prices ranging from $0.22 to $0.48. The Company received a total of $13,056 from the exercise of these options.

During the year ended September 30, 2010, 465,158 shares of common stock were issued in payment of invoices totaling $1,241,026. During the year ended September 30, 2011, 348,280 shares of common stock were issued in payment of invoices totaling $214,123.

On March 12, 2010, the Company temporarily reduced the exercise price of the Series M warrants, originally issued on April 18, 2007. The exercise price was reduced from $2.00 to $0.75. At any time prior to June 16, 2010, investors could have exercised the Series M warrants at a price of $0.75 per share. For every two Series M warrants exercised prior to June 16, 2010, the investor would have received one Series F warrant. Each Series F warrant would have allowed the holder to purchase one share of the Company’s common stock at a price of $2.50 per share at any time on or before June 15, 2014. After June 15, 2010 the exercise price of the Series M warrants reverted back to the $2.00 per share. Any person exercising a Series M warrant after June 15, 2010 would not receive any Series F warrants. The Series M warrants expire on April 17, 2012. An analysis of the modification to the warrants determined that the modification increased the value of the warrants by $1,432,456. The adjustment was recorded as a debit and a credit to additional paid-in capital. There were no exercises of the Series M warrants at the reduced price and the exercise price of the Series M warrants reverted back to $2.00 on June 16, 2010.

On August 3, 2010, the Company’s Board of Directors approved an amendment to the terms of the Series M warrants held by an investor. The investor is the owner of 8,800,000 warrants priced at $2.00 per share. The investor may now purchase 6,000,000 shares of the Company’s common stock (reduced from 8,800,000) at a price of $0.60 per share. In approving the amendment, the Company’s Directors determined that reducing the number of outstanding warrants would be beneficial. An analysis of the modification to the warrants determined that the modification increased the value of the warrants by $100,000. The adjustment was recorded as a debit and a credit to additional paid-in capital. As of September 30, 2011, all of these warrants remained outstanding.

On December 10, 2010, the Company entered into a sales agreement with McNicoll Lewis & Vlak LLC (MLV) relating to shares of common stock which have been registered by means of a shelf registration statement filed in July 2009. The Company may offer and sell shares of its common stock, having an aggregate offering price of up to $30 million from time to time through MLV acting as agent and/or principal. During the fiscal year ended September 30, 2011, the Company sold 7,424,982 shares of common stock for a gross amount of $4,144,712, and the Company received a net amount after commissions and fees of $3,936,284.

Sales of the Company’s common stock, if any, may be made in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, and/or any other method permitted by law. The Company is not required to sell any shares to McNicoll Lewis & Vlak and McNicoll Lewis & Vlak is not required to sell any shares on the Company’s behalf or purchase any of the Company’s shares for its own account.

McNicoll Lewis & Vlak will be entitled to a commission in an amount equal to the greater of 3% of the gross proceeds from each sale of the shares, or $0.025 for each share sold, provided, that, in no event will McNicoll Lewis & Vlak receive a commission greater than 8.0% of the gross proceeds from the sale of the shares. The agreement was terminated in December 2011.