PRIVATE PLACEMENT FINANCING | 6. PRIVATE PLACEMENT FINANCING On January 30, 2014, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with nine separate accredited investors (“2014 Investors”) providing for the issuance and sale by the Company to the 2014 Investors, in a private placement, of an aggregate of 11,400,000 0.25 34,200,000 2,850,000 Upon the closing of the 2014 Private Placement Financing on February 4, 2014 (the “Closing Date”), the Company entered into a registration rights agreement (the “2014 Registration Rights Agreement”) with the 2014 Investors, pursuant to which the Company became obligated, subject to certain conditions, to file with the Securities and Exchange Commission (“SEC”) on or before March 21, 2014 one or more registration statements to register for resale under the Securities Act of 1933, as amended, (i) the 2014 Shares and the 2014 Warrant Shares, plus (ii) an additional number of shares of Common Stock equal to 33% of the total number of 2014 Shares and 2014 Warrant Shares, to account for adjustments, if any, to the number of 2014 Warrant Shares issuable pursuant to the terms of the 2014 Warrants (the securities set forth in this clause (ii), the “Additional Shares”). Under the terms of the 2014 Registration Rights Agreement, the Company is permitted to reduce the number of shares covered by a registration statement if such reduction is required by the SEC as a condition for permitting such registration statement to become effective and treated as a resale registration statement (the “Cutback Provisions”). In response to comments received from the SEC and in accordance with the terms of the 2014 Registration Rights Agreement, the Company reduced the number of shares included in its draft resale registration statement by the number of Additional Shares. The Company’s failure to satisfy certain other obligations and deadlines set forth in the 2014 Registration Rights Agreement may subject the Company to payment of monetary penalties as discussed below. The resale registration statement was declared effective on July 2, 2014. As described below, in the event that we fail to comply with certain requirements in the 2014 Registration Rights Agreement, we may be required to pay liquidated damages to the investors. The 2014 Warrants were exercisable immediately upon issuance. The Series A warrants had an initial exercise price of $ 0.30 0.35 12 0.40 18 4.9 The Company may be required to make certain payments to the 2014 Investors under certain circumstances in the future pursuant to the terms of the Securities Purchase Agreement and the 2014 Registration Rights Agreement. These potential future payments include: (a) potential partial damages for failure to register the Common Stock issued or issuable upon exercise of 2014 Warrants (in a cash amount equal to 1% of the price paid to the Company by each investor in the 2014 Private Placement Financing on the date of and on each 30-day anniversary of such failure until the cure thereof; (b) amounts payable if the Company and its transfer agent fail to timely remove certain restrictive legends from certificates representing shares of Common Stock issued in the 2014 Private Placement Financing or issuable upon exercise of the 2014 Warrants; (c) expense reimbursement for the lead investor in the 2014 Private Placement Financing; and (d) payments in respect of claims for which the Company provides indemnification. There is no cap to the potential consideration. On July 2, 2014, we received from the SEC a Notice of Effectiveness of our Registration Statement related to the 2014 Private Placement Financing which satisfied some of our obligation to register these securities with the SEC. On December 1, 2014, the Company agreed to amend certain provisions of the 2014 Warrants (the “December 2014 Amendment”). Under the terms of the December 2014 Amendment, the affected 2014 Warrants were amended to (i) reduce the exercise price of the Series B Warrants from $ 0.35 0.20 0.40 0.20 1,300,170 As of December 2, 2014, Series B Warrants had been exercised for an aggregate issuance of 4,000,000 800,000 224,000 On March 13, 2015, the Company issued unsecured 8 750,000 0.20 5,700,000 11,400,000 17,100,000 624,016 During the quarter ended June 30, 2015, Series C Warrants had been exercised for an aggregate issuance of 2,255,000 451,000 75,321 On June 22, 2015 the Company entered into the Amendment to the Series A Warrants and Series C Warrants to purchase Common Stock (the “June 2015 Amendment”), with Cranshire Capital Master Fund, Ltd. (“Cranshire”), to (i) delete the full ratchet anti-dilution provisions set forth in the Series A Warrants and Series C Warrants; and (ii) extend the expiration date of the Series C Warrants from to 5:00 p.m., New York time, on July 2, 2015 to 5:00 p.m., New York time, on July 2, 2016. In consideration of Cranshire’s entrance into the June 2015 Amendment (and for no additional consideration), the Company agreed to issue to the holders of the 2014 Warrants up to 570,000 927,373 For the period ended June 30, 2015, 435,000 570,000 125,000 total of 560,000 Derivative Liabilities The Company accounted for the 2014 Warrants relating to the aforementioned 2014 Private Placement Financing in accordance with ASC 815-10, Derivatives and Hedging On February 4, 2014, the initial closing date of the 2014 Private Placement Financing, the derivative liabilities were recorded at fair value of $ 10,391,693 2,850,000 7,541,693 The value of the derivative liability as of June 30, 2015 and September 30, 2014 was $ 3,886,613 6,270,000 925,384 2,980,829 1,584,818 2,069,693 927,373 896,763 75,321 299,321 4,000,000 2,255,000 6,255,000 Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Warrant Derivative Liability Beginning balance at September 30, 2014 $ 6,270,000 Modification of warrants, net of Inducement Shares 896,763 Exercises of warrants (299,321) Adjustments to estimated fair value (2,980,829) Ending balance at June 30, 2015 $ 3,886,613 September 30, December 1, March 15, June 22, June 30, 2014 2014 2015 2015 2015 Closing price per share of Common Stock $ 0.18 $ 0.25 $ 0.21 $ 0.23 $ 0.26 Exercise price per share $ 0.30 - 0.40 $ 0.20 - $0.30 $ 0.20 - $0.30 $ 0.20 $ 0.20 Expected volatility 85 - 90 % 80 90 % 80 110 % 55- 85 % 75-85 % Risk-free interest rate 0.02 - 1.55 % .01 1.39 % 0.03 1.41 % 0.27 - 1.68 % 0.28 1.63 % Dividend yield Remaining expected term of underlying securities (years) 0.33 - 4.33 0.33 4.6 0.22 4.3 1.03 4.03 1.01 4.01 Common Stock At the February 4, 2014 closing date of the 2014 Private Placement Financing, the Company issued 11,400,000 11,400 0.001 | 8. PRIVATE PLACEMENT FINANCING On January 30, 2014, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with nine separate accredited investors (“Investors”) providing for the issuance and sale by the Company to the Investors, in a private placement, of an aggregate of 11,400,000 shares of the Company’s common stock (collectively, the “Shares”) at a purchase price of $0.25 per share and three series of warrants, the Series A warrants, the Series B warrants and the Series C warrants, to purchase up to an aggregate of 34,200,000 shares of the Company’s common stock (collectively, the “Warrants,” and the shares issuable upon exercise of the Warrants, collectively, the “Warrant Shares”), for aggregate gross proceeds to the Company of approximately $2,850,000 (the “Private Placement Financing”). Upon the closing of the Private Placement Financing on February 4, 2014 (the “Closing Date”), the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors, pursuant to which the Company became obligated, subject to certain conditions, to file with the Securities and Exchange Commission on or before March 21, 2014 one or more registration statements to register for resale under the Securities Act of 1933, as amended, (i) the Shares and the Warrant Shares, plus (ii) an additional number of shares of common stock equal to 33% of the total number of Shares and Warrant Shares, to account for adjustments, if any, to the number of Warrant Shares issuable pursuant to the terms of the Warrants (the securities set forth in this clause (ii), the “Additional Shares”). Under the terms of the Registration Rights Agreement, the Company is permitted to reduce the number of shares covered by a registration statement if such reduction is required by the SEC as a condition for permitting such registration statement to become effective and treated as a resale registration statement (the “Cutback Provisions”). In response to comments received from the SEC and in accordance with the terms of the Registration Rights Agreement, the Company reduced the number of shares included in its draft resale registration statement by the number of Additional Shares. The Company’s failure to satisfy certain other obligations and deadlines set forth in the Registration Rights Agreement may subject the Company to payment of monetary penalties as discussed below. The resale registration statement was declared effective on July 2, 2014. As described below, in the event that we fail to comply with certain requirements in the Registration Rights Agreement, we may be required to pay liquidated damages to the investors. The Warrants are exercisable immediately upon issuance. The Series A warrants have an exercise price of $ 0.30 0.35 12 0.40 18 4.9 The Company may be required to make certain payments to the investors in the Private Placement Financing under certain circumstances in the future pursuant to the terms of the Securities Purchase Agreement and the Registration Rights Agreement. These potential future payments include: (a) potential partial damages for failure to register the common stock issued or issuable upon exercise of Warrants (in a cash amount equal to 1% of the price paid to the Company by each investor in the Private Placement Financing on the date of and on each 30-day anniversary of such failure until the cure thereof); (b) amounts payable if the Company and its transfer agent fail to timely remove certain restrictive legends from certificates representing shares of common stock issued in the Private Placement Financing or issuable upon exercise of the Warrants; (c) expense reimbursement for the lead investor in the Private Placement Financing; and (d) payments in respect of claims for which the Company provides indemnification. There is no cap to the potential consideration. On July 2, 2014, we received from the SEC a Notice of Effectiveness of our Registration Statement related to the Private Placement which satisfied some of our obligation to register these securities with the SEC. Derivative Liabilities The Company accounted for the Warrants relating to the aforementioned Private Placement in accordance with ASC 815-10, Derivatives and Hedging On the closing date, the derivative liabilities were recorded at fair value of $ 10,391,693 2,850,000 7,541,693 The value of the derivative liability as of September 30, 2014 was $ 6,270,000 4,121,693 Fair Value Measurements Using Significant Unobservable Warrant Derivative Liability Beginning balance at September 30, 2013 $ Issuances 10,391,693 Adjustments to estimated fair value (4,121,693) Ending balance at September 30, 2014 $ 6,270,000 September 30, February 04, 2014 Closing price per share of common stock $0.18 $0.30 Exercise price per share $0.30 - 0.40 $0.30 - 0.40 Expected volatility 85 - 90% 100 - 125% Risk-free interest rate 0.02 - 1.55% 0.12-1.46% Dividend yield Remaining expected term of underlying securities (years) .33 4.33 1 - 5 Common Stock At the Closing Date, the Company issued 11,400,000 11,400 0.001 |