C. STOCKHOLDERS EQUITY

3 Months Ended

Dec. 31, 2015

Notes to Financial Statements

C. STOCKHOLDERS' EQUITY

Stock options, stock bonuses and compensation granted by the Company as of December 31, 2015 are as follows:

Name of Plan	Total Shares Reserved Under Plans		Shares Reserved for Outstanding Options		Shares Issued		Remaining Options/Shares Under Plans
Incentive Stock Options Plans		1,960,000		1,687,032		N/A		10,268
Non-Qualified Stock Option Plans		7,680,000		5,977,687		N/A		1,090,895
Stock Bonus Plans		3,594,000		N/A		1,754,510		1,838,663
Stock Compensation Plan		3,350,000		N/A		1,526,491		1,790,458
Incentive Stock Bonus Plan		16,000,000		N/A		15,600,000		400,000

Stock options, stock bonuses and compensation granted by the Company as of September 30, 2015 are as follows:

Name of Plan	Total Shares Reserved Under Plans		Shares Reserved for Outstanding Options		Shares Issued		Remaining Options/Shares  Under Plans
Incentive Stock Option Plans		1,960,000		1,690,665		N/A		6,635
Non-Qualified Stock Option Plans		7,680,000		5,849,103		N/A		1,219,479
Bonus Plans		3,594,000		N/A		1,635,112		1,958,061
Stock Compensation Plan		3,350,000		N/A		1,423,999		1,892,950
Incentive Stock Bonus Plan		16,000,000		N/A		15,600,000		400,000

Stock options granted to employees and directors by the Company or forfeited by the holder during the three months ended December 31, 2015 and 2014 are as follows:

	Three Months Ended December 31,
	2015		2014
Granted		-		1,000
Forfeited		22,966		97,500

Stock-Based Compensation Expense

	Three Months Ended December 31,
	2015		2014
Employees	$	427,910	$	3,059,791
Non-employees	$	329,195	$	189,144

Employee compensation expense includes the expense related to options issued or vested and restricted stock.  Non-employee expense includes the expense related to options and stock issued to consultants expensed over the period of their service contract.

Derivative Liabilities, Warrants and Other Options

The following chart presents the derivative liabilities, warrants and other options outstanding during the quarter ended December 31, 2015:

Warrant	Issue Date	Shares Issuable upon Exercise of Warrant		Exercise Price		Expiration Date	Reference
Series R	12/6/12		2,625,000	$	4.00	12/6/16		1
Series S	10/11/13 -10/24/14		25,928,010	$	1.25	10/11/18		1
Series U	4/17/14		445,514	$	1.75	10/17/17		1
Series V	5/28/15		20,253,164	$	0.79	5/28/20		1
Series W	10/28/15		17,723,248	$	0.67	10/28/20		1
Series N	8/18/08		2,844,627	$	0.53	8/18/17		2
Series P	2/10/12		590,001	$	4.50	3/6/17		2
Consultants	12/2/11- 10/1/15		380,000	$	0.60- $3.50	12/1/16- 9/30/18		3

Below is a chart presenting the derivative liabilities, warrants and other options outstanding at September 30, 2015:

Warrant	Issue Date	Shares Issuable upon Exercise of Warrants		Exercise Price		Expiration Date	Reference
Series N	8/18/08		2,844,627	$	0.53	8/18/17		1
Series Q	6/21/12		1,200,000	$	5.00	12/22/15		1
Series R	12/6/12		2,625,000	$	4.00	12/6/16		1
Series S	10/11/13- 10/24/14		25,928,010	$	1.25	10/11/18		1
Series U	4/17/14		445,514	$	1.75	10/17/17		1
Series V	5/28/15		20,253,164	$	0.79	5/28/20		1
Series P	2/10/12		590,001	$	4.50	3/6/17		2
Consultants	10/14/05 – 7/1/15		238,000	$	0.66 – 20.00	10/14/15 - 6/30/18		3

1.   Derivative Liabilities

The table below presents the derivative instruments and their respective balances at the balance sheet dates:

	December 31, 2015		September 30, 2015
Series S warrants	$	4,537,402	$	7,363,555
Series U warrants		13,365		44,551
Series V warrants		3,037,975		6,278,481
Series W warrants		3,035,656		-
Total derivative liabilities	$	10,624,398	$	13,686,587

The table below presents the gains on the derivative instruments for the three months ended December 31:

	2015		2014
Series A through E warrants	$	-	$	6,105
Series R warrants		-		131,250
Series S warrants		2,826,153		1,950,383
Series U warrants		31,186		75,232
Series V warrants		3,240,506		-
Series W warrants		2,025,115		-
Net gain on derivative instruments	$	8,122,960	$	2,162,970

The Company reviews all outstanding warrants in accordance with the requirements of ASC 815.  This topic provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.  The warrant agreements provide for adjustments to the exercise price for certain dilutive events.  Under the provisions of ASC 815, the warrants are not considered indexed to the Company’s stock because future equity offerings or sales of the Company’s stock are not an input to the fair value of a “fixed-for-fixed” option on equity shares, and equity classification is therefore precluded.

In accordance with ASC 815, derivative liabilities must be measured at fair value upon issuance and re-valued at the end of each reporting period through expiration.  Any change in fair value between the respective reporting dates is recognized as a gain or loss.

Issuance of additional Warrants

On October 28, 2015, the Company closed an underwritten public offering of 17,223,248 shares of common stock and 17,223,248 Series W warrants to purchase shares of common stock. The common stock and warrants were sold at a combined per unit price of $0.67 for net proceeds of approximately $10.6 million, net of underwriting discounts and commissions and offering expenses.  The Series W warrants are immediately exercisable at a price of $0.67 and expire on October 28, 2020.  The initial cost of the Series W warrants of $5,060,771 was recorded as warrant liability.

Expiration of Warrants

On December 22, 2015, 1,200,000 Series Q warrants, with an exercise price of $5.00, expired. The fair value of the Series Q warrants was $0 on the date of expiration.

2.   Equity-based warrants

There were no changes to equity based warrants during the quarters ended December 31, 2015 and September 30, 2015.

3.   Options and shares issued to Consultants

As of December 31, 2015, 380,000 options issued to consultants as payment for services remained outstanding, all of which were issued from the Non-Qualified Stock Option plans.

The Company extended a one-year consulting agreement for services to be provided through December 15, 2015.  In consideration for services provided, the Company issued the consultant 100,000 restricted shares in three installments during the period of service.  The aggregate fair market value of $66,900 was charged to general and administrative expense over the period of service.

On October 20, 2013, the Company entered into a consulting agreement for services to be provided through October 19, 2016.  In consideration for services provided, the Company agreed to issue the consultant 34,164 restricted shares each month of the agreement, with the first three months being issued in advance. During the three months ended December 31, 2015 and 2014, the Company issued the consultant 102,492 shares of restricted stock at the fair market value of $54,321 and $71,403, respectively.  The aggregate fair market value was recorded as a prepaid expense and is being charged to general and administrative expense over the period of service. During the three months ended December 31, 2015 and 2014, respectively, the Company issued an additional 300,000 and 150,000 shares of common stock to this consultant at the aggregate fair market value of $216,000 and $97,500, respectively in consideration of services provided.

During the three months ended December 31, 2015, the Company issued a third consultant, 40,000 shares of restricted stock at the aggregate fair market value of $22,600.  These shares were issued for services provided during the three month period ended December 31, 2015, they vested immediately and were expensed upon issuance.  Also during the three months ended December 31, 2015, the Company issued a fourth consultant options to purchase 150,000 shares of restricted common stock at fair market value in exchange for services to be provided through June 30, 2016.  The aggregate fair market value of the options of $44,451 was recorded as a prepaid expense and is being charged to general and administrative expense over the period of service. During the three months ended December 31, 2014, the Company issued a fifth consultant, 10,000 shares of restricted stock at the fair market value of $7,250, which were expensed during the three months ended December 31, 2014.

During the three months ended December 31, 2015 and 2014, the Company recorded total expense of $329,195 and $189,144 relating to these consulting agreements. At December 31, 2015 and September 30, 2015, respectively, $38,506 and $30,329 is included in prepaid expenses.