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C. STOCKHOLDERS EQUITY

9 Months Ended

Jun. 30, 2016

Stock options, stock bonuses and compensation granted by the Company as of June 30, 2016 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		1,685,966		N/A		11,334
Non-Qualified Stock Option Plans		7,680,000		6,005,721		N/A		1,062,861
Stock Bonus Plans		3,594,000		N/A		2,562,950		1,030,223
Stock Compensation Plan		3,350,000		N/A		1,767,047		1,549,905
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		1,643,714		1,949,459
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 option activity:

	Nine Months Ended June 30,
	2016		2015
Granted		210,000		803,700
Forfeited		55,998		137,249

	Three Months Ended June 30,
	2016		2015
Granted		0		801,700
Forfeited		5,000		27,833

No shares of restricted stock were forfeited from the Incentive Stock Bonus Plan during the nine and three months ended June 30, 2016. During the nine and three months ended June 30, 2015, 100,000 and 0 shares, respectively, of non-vested restricted stock were forfeited.

Stock-Based Compensation Expense

	Nine Months Ended June 30,
	2016		2015
Employees	$	1,263,662	$	4,570,999
Non-employees	$	618,890	$	437,729

	Three months Ended June 30,
	2016		2015
Employees	$	418,562	$	619,145
Non-employees	$	146,830	$	137,600

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 contracts.

Derivative Liabilities, Warrants and Other Options

The following chart presents the derivative liabilities, warrants and other options outstanding during the quarter ended June 30, 2016:

Warrant	Issue Date	Shares Issuable upon Exercise of Warrant		Exercise Price		Expiration Date	Refer-ence

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		17,223,248	$	0.67	10/28/20		1
Series Z	5/23/16		6,600,000	$	0.55	11/23/21		1
Series ZZ	5/23/16		500,000	$	0.55	5/18/21		1
Series X	1/13/16		3,000,000	$	0.37	1/13/21		2
Series Y	2/15/16		650,000	$	0.48	2/15/21		2
Series N	8/18/08		2,844,627	$	0.53	8/18/17
Series P	2/10/12		590,001	$	4.50	3/6/17
Consultants	12/2/11- 1/1/16		440,000	$	0.37- $3.50	10/27/16- 12/31/18		3

The following chart presents 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	Refer-ence

Series N	8/18/08		2,844,627		0.53	8/18/17
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
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:

	June 30, 2016		September 30, 2015
Series S warrants	$	3,930,686	$	7,363,555
Series U warrants		4,455		44,551
Series V warrants		3,443,038		6,278,481
Series W warrants		3,557,971		-
Series Z warrants		1,756,982		-
Series ZZ warrants		129,920		-

Total derivative liabilities	$	12,823,052	$	13,686,587

The gains on the derivative instruments are as follows:

	Nine Months Ended June 30,
	2016		2015
Series A through E warrants	$	-	$	6,105
Series H warrants		-		12,000
Series Q warrants		-		12,000
Series R warrants		-		131,250
Series S warrants		3,432,869		472,487
Series U warrants		40,096		74,352
Series V warrants		2,835,443		1,100,760
Series W warrants		1,502,800		-
Series Z warrants		210,848		-
Series ZZ warrants		15,918		-

Gain on derivative instruments	$	8,037,974	$	1,808,954

	Three Months Ended June 30,
	2016		2015
Series H warrants	$	-	$	12,000
Series Q warrants		-		12,000
Series R warrants		-		105,000
Series S warrants		285,208		3,111,361
Series U warrants		13,366		87,659
Series V warrants		1,012,658		1,100,760
Series W warrants		970,746
Series Z warrants		210,848		-
Series ZZ warrants		15,918		-

Gain on derivative instruments	$	2,508,744	$	4,428,780

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 May 23, 2016, the Company closed a registered direct offering of 10,000,000 shares of common stock and 6,600,000 Series Z warrants to purchase shares of common stock. The common stock and warrants were sold at a combined per unit price of $0.50 for net proceeds of approximately $4.6 million, net of placement agent’s commissions and offering expenses. The Series Z warrants may be exercised at any time on or after November 23, 2016 and on or before November 23, 2021 at a price of $0.55 per share. The Company also issued 500,000 Series ZZ warrants to the placement agent as part of its compensation. The Series ZZ warrants may be exercised at any time on or after November 23, 2016 and on or before May 18, 2021 at a price of $0.55 per share. The fair value of the Series Z and Series ZZ warrants of $2.1 million on the date of issuance was recorded as a warrant liability.

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 $10.5 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 fair value of the Series W warrants of $5.1 million on the date of issuance 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

In January 2016, the Company sold 3,000,000 shares of its common stock and 3,000,000 Series X warrants to the de Clara Trust for approximately $1.1 million. The de Clara Trust is controlled by Geert Kersten, the Company's Chief Executive Officer and a director. Each Series X warrant allows the de Clara Trust to purchase one share of the Company's common stock at a price of $0.37 per share at any time on or before January 13, 2021. The Series X warrants qualify for equity treatment in accordance with ASC 815. The relative fair value of the warrants was calculated to be approximately $417,000.

In February 2016, the Company sold 1,300,000 shares of its common stock and 650,000 Series Y warrants to a private investor for $624,000. Each Series Y warrant allows the holder to purchase one share of the Company's common stock at a price of $0.48 per share at any time on or before February 15, 2021. The Series Y warrants qualify for equity treatment in accordance with ASC 815. The relative fair value on the date of issuance of the warrants was calculated to be approximately $144,000.

3.	Options and shares issued to consultants

The Company typically enters into consulting arrangements in exchange for common stock or stock options. During the nine and three months ended June 30, 2016, the Company issued 990,045 and 186,267 shares of common stock, respectively, of which 647,000 and 67,000, respectively, were restricted shares. Under these arrangements, the common stock was issued with stock prices ranging between $0.37 and $0.72 per share. During the nine and three months ended June 30, 2015, the Company issued 584,476 and 160,492 shares of common stock, respectively, of which 127,000 and 58,000, respectively, were restricted shares. Under these arrangements, the common stock was issued with stock prices ranging between $0.57 and $1.11 per share.

Additionally, during the nine and three months ended June 30, 2016, the Company issued 210,000 and 0 of fully vested options, respectively, to purchase common stock with a fair value ranging between $0.19 and $0.30 per share. During the nine and three months ended June 30, 2015, the Company issued 40,000 and 0 options, respectively, to purchase common stock with a fair value of $0.50 per share. The aggregate values of the issuances of restricted common stock and common stock options are recorded as prepaid expenses and are charged to general and administrative expenses over the periods of service.

During the nine and three months ended June 30, 2016, the Company recorded total expense of approximately $619,000 and $147,000, respectively, relating to these consulting agreements. During the nine and three months ended June 30, 2015, the Company recorded total expense of approximately $438,000 and $138,000, respectively, relating to these consulting agreements. At June 30, 2016 and September 30, 2015, approximately $32,000 and $30,000, respectively, are included in prepaid expenses. As of June 30, 2016, 440,000 vested options issued to consultants as payment for services remained outstanding, all of which were issued from the Non-Qualified Stock Option plans.