|
|
As of March 31, 2013
|
|
|
|
As Originally
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes, net of debt discount
|
|
|
2,005,146
|
|
|
|
(150,214
|
)
|
|
|
2,312,959
|
|
Derivative liability
|
|
|
4,478,105
|
|
|
|
(4,051,399
|
)
|
|
|
426,706
|
|
Unregistered shares shortfall
|
|
|
-
|
|
|
|
3,696,279
|
|
|
|
3,696,279
|
|
Additional Paid In Capital
|
|
|
36,089,172
|
|
|
|
(3,846,493
|
)
|
|
|
|
|
Accumulated Deficits
|
|
|
(44,479,875
|
)
|
|
|
2,234,914
|
|
|
|
|
)
|
|
|
For the year ended September 30, 2012
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
Statements of operations
|
|
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on change in FV of derivative liability
|
|
|
233,186
|
|
|
|
242,049
|
|
|
|
475,235
|
|
Net income (loss)
|
|
|
(5,792,619
|
)
|
|
|
242,049
|
|
|
|
(5,520,570
|
)
|
Basic income (loss) per share
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2012
|
|
|
|
As Originally
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(296,410
|
)
|
|
|
(146,181
|
)
|
|
|
(442,591
|
)
|
Gain (loss) on change in FV of derivative liability
|
|
|
78,191
|
|
|
|
(12,289
|
)
|
|
|
65,902
|
|
Change in FV of unregistered shares shortfall
|
|
|
-
|
|
|
|
1,075,353
|
|
|
|
1,075,353
|
|
Gain (loss) on settlement of debts
|
|
|
4,031
|
|
|
|
(143,992
|
)
|
|
|
(139,961
|
)
|
Net income (loss)
|
|
|
(1,057,909
|
)
|
|
|
772,893
|
|
|
|
(285,016
|
)
|
Basic income (loss) per share
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
For the six months ended March 31, 2013
|
|
|
For the three months ended March 31, 2013
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
As
Originally
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(500,890
|
)
|
|
|
(300,428
|
)
|
|
|
(708,540
|
)
|
|
|
(204,480
|
)
|
|
|
(61,469
|
)
|
|
|
(265,949
|
)
|
Gain (loss) on change in FV of derivative liability
|
|
|
(4,107,185
|
)
|
|
|
4,076,608
|
|
|
|
(30,577
|
)
|
|
|
(4,185,376
|
)
|
|
|
4,088,897
|
|
|
|
(96,479
|
)
|
Change in FV of unregistered shares shortfall
|
|
|
-
|
|
|
|
(1,516,058
|
)
|
|
|
(1,516,058
|
)
|
|
|
-
|
|
|
|
(2,591,411
|
)
|
|
|
(2,591,411
|
)
|
Gain (loss) on settlement of debts
|
|
|
(174,734
|
)
|
|
|
(10,568
|
)
|
|
|
(185,302
|
)
|
|
|
170,703
|
|
|
|
(216,045
|
)
|
|
|
(45,342
|
)
|
Net income (loss)
|
|
|
(6,916,876
|
)
|
|
|
1,992,864
|
|
|
|
(4,924,012
|
)
|
|
|
(5,858,967
|
)
|
|
|
1,219,972
|
|
|
|
(4,638,995
|
)
|
Basic income (loss) per share
|
|
|
(0.02
|
)
|
|
|
0.01
|
|
|
|
(0.001
|
)
|
|
|
(0.01
|
)
|
|
|
0.01
|
|
|
|
0.00
|
|
Note 4
–
Property and Equipment
Property and equipment consisted of the following at:
|
|
June 30,
2013
|
|
|
September
30,
2012
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
90,780
|
|
|
$
|
166,159
|
|
Less accumulated depreciation
|
|
|
(40,786
|
)
|
|
|
(38,040
|
)
|
Property and equipment, net
|
|
$
|
49,994
|
|
|
$
|
128,119
|
|
Depreciation expense for the three months ended June 30, 2013 and 2012 was $6,472 and $8,607, respectively. For the nine months ended June 30, 2013 and 2012, depreciation expense was $23,848 and $16,055, respectively.
Note 5
–
Accrued Expenses
Accrued expenses consisted of the following at:
|
|
June 30,
2013
|
|
|
September
30,
2012
|
|
|
|
|
|
|
|
|
|
Accrued salaries
|
|
$
|
710,768
|
|
|
$
|
306,055
|
|
Interest payable
|
|
|
524,121
|
|
|
|
364,567
|
|
Other accrued expenses
|
|
|
76,083
|
|
|
|
237,106
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
1,310,972
|
|
|
$
|
907,728
|
|
During the nine months ended June 30, 2013, $15,693 of accrued interest was included in the conversion of notes payable into common stock described in Note 6.
Note 6
–
Notes Payable
–
Related Parties
The Company has received advances in the form of unsecured promissory notes from stockholders. The original date of these advances was November 2009, March 2011, October 2011 and March 2013. These notes bear interest at rates up to 10% and are due on demand. As of June 30, 2013 and September 30, 2012, such notes payable amounted to $45,000 and $25,000, respectively. Accrued interest on the notes amounted to $22,218 and $17,717 at June 30, 2013 and September 30, 2012, respectively, and is included in accrued expenses. Interest expense on these notes for the three months ended June 30, 2013 and 2012 amounted to $1,138 and $632, respectively and for the nine months ended June 30, 2013 and 2012 amounted to $2,501 and $2,194, respectively. No demand for payment has been made as of June 30, 2013.
Note 7
–
Convertible Notes
At June 30, 2013 and September 30, 2012, convertible notes payable amounted to $1,184,136 and $1,319,737, respectively, net of discounts of $124,226 and $383,659 respectively. The notes bear interest at 6% - 12% per annum, and are convertible into common stock of the Company at $0.02 - $0.15 per share (as well as variable conversion rates as described below). The notes are due at various dates through March 2014 and are unsecured.
Unsecured Convertible Notes:
Through June 30, 2013, the Company issued $700,000 of convertible debentures (of which $0 is outstanding at June 30, 2013) that are convertible into common stock of the Company at variable conversion rates that provide a fixed rate of return to the note-holder. Under the terms of the notes, however, the Company could be required to issue additional shares of common stock in the event of default. The Company applied the provisions of ASC Topic 815, “Derivatives and Hedging” and determined that the conversion option should be bifurcated from the notes and valued separately. This conversion option has been recorded as a derivative liability, is being amortized over the terms of the related notes, and is carried at fair value in the accompanying condensed consolidated balance sheet.
During the nine months ended June 30, 2013, holders of convertible debentures elected to convert $170,000 of their debt plus accrued interest into 19,544,356 shares of common stock.
6% Convertible Redeemable Note:
On November 23, 2011 Sionix issued a 6% Convertible Redeemable Note in the principal amount $100,000 maturing on November 23, 2012. In addition, the Company received a commitment in the form of a promissory note from the lender pursuant to which the lender provided the Company with funding of up to an additional $300,000 beginning on June 1, 2012, at which time $100,000 became available, on each of June 1, 2012, July 1, 2012 and August 1, 2012 (the "Additional Financing"). All funds were advanced as agreed for a total of $400,000. Sionix paid fees of $45,000 in connection with the funding of these loans. The conversion price for each share of common stock will be equal to 70% of the lowest closing bid price of the common stock for a period of five trading days, but no lower than $0.001 per share.
On September 21, 2012 Sionix issued a 6% Convertible Redeemable Note in the principal amount $100,000. The note matures on September 21, 2013. The Company has an optional right of redemption prior to maturity upon a five-day notice and payment of a 50% premium on the unpaid principal amount of the loan. The Company paid fees of $6,000 in connection with the funding of this loan. In addition, the Company received a commitment in the form of a promissory note pursuant to which it will provide the Company with funding of an additional $300,000, $100,000 of which will become available on each of July 1, 2013, August 15, 2013 and October 1, 2013. The conversion price for each share of common stock will be equal to 70% of the lowest closing bid price of the common stock for a period of five trading days, but no lower than $0.001 per share.
As of June 30, 2013 there was $83,268 outstanding on these Notes.
10% Convertible Debentures:
On September 29, 2012 the Company entered into a securities purchase agreement dated September 25, 2012 with several accredited investors (“Holders”) for the purchase and sale of $1,025,000 of its convertible notes (“Notes”) and warrants. The Notes bear interest at the rate of 10% per annum beginning as of September 25, 2012, and mature on June 25, 2013. On the closing date, the Company paid and the Holders received nine months of pre-paid interest on the original principal amount of the Notes (based on the agreed nine-month term of the Notes).
The Notes are convertible at any time at the option of the Holders into the Company’s common stock at a conversion price based on 80% of the average of the three lowest closing prices for the common stock during the ten consecutive trading days immediately preceding the conversion request, however the conversion price may not exceed $0.04, and may not be lower than $0.02 per share. The Notes may be redeemed by the Company at any time prior to maturity with ten days’ prior notice to the Holders, and payment of a premium of 25% on the unpaid principal amount of the Notes. In addition the Notes and related securities purchase agreement contain representations, warranties and covenants that are customary for financings of this type.
The Company issued warrants to the Holders for the purchase of up to 23,125,000 shares of Company common stock, pro rata in proportion to the amount invested, which can be exercised for a period of five years from the closing date, with a fixed exercise price of $0.08 per share.
The Company agreed to register the common stock into which the Notes may be converted, any shares of common stock that may be issued as payment of principal or interest, and the common stock underlying the warrants, as well as any shares of common stock that may be issued as a result of any stock split, dividend or other distribution. The Company agreed to file an initial registration statement within 30 days of the date of the registration rights agreement. If the Company fails to file a registration statement within this 30 day period, or to have it declared effective within 90 days after the date of the registration rights agreement, or to maintain its effectiveness (in addition to other events described in the full text of the registration rights agreement), the Company will be obligated to pay the investors liquidated damages equal to 2% of the principal amount of the Notes per month until the event is cured, for up to one year, and 1% per month thereafter if the event continues uncured
The offering was made with the services of a placement agent. At the closing of the sale and issuance of the Notes, the Company paid a cash fee to the placement agent in the amount of $87,535 or 8.54% of the gross proceeds of the offering.
The Company gave notice of early redemption to the Holders on June 24, 2013. The Notes were redeemed for a premium of 25%, in accordance with the provisions of the Notes. As of June 30, 2013, the stock certificates have not been issued. Hence, these amounts are reflected as common stock to be issued in the accompanying balance sheet. Subsequent to June 30, 2013, these stock certificates were issued.
January Convertible Notes:
On January 25, 2013 the Company entered into securities purchase agreements (the “January SPAs”) with accredited investors (the “January Holders”) for the purchase and sale of $140,000 of convertible notes (the “January 2013 Notes”) convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a conversion price equal to 80% of the average of the three (3) lowest closing prices for the Common Stock during the ten (10) consecutive trading days immediately preceding the conversion request, however the conversion price may not exceed $0.04 and may not be lower than $0.02 per share. The January 2013 Notes bear interest at the rate of 10% per annum and mature on September 30, 2014. The January 2013 Notes are convertible at any time at the option of the January Holders (subject to an increase in the Company’s authorized Common Stock, or a reverse split of its existing outstanding Common Stock with no change to its authorized Common Stock). The Company may redeem the January 2013 Notes at any time prior to maturity with twenty (20) days’ prior notice to the January Holders and payment of a premium of 20% on the unpaid principal amount.
In addition, the January 2013 Notes and January SPAs provide the January Holders with registration rights for the shares of Common Stock underlying the January 2013 Notes. If the Company fails to file a registration statement with the SEC covering such shares within thirty (30) days from the date of the January Notes, the Company shall pay to the January Holders an amount in cash, as partial liquidated damages, equal to 2% of the aggregate purchase price paid by the January Holders pursuant to the January SPAs until the first anniversary of the issue date and 1% of the same per month thereafter, not to exceed 10% of the principal amount in the aggregate.
March Convertible Notes:
On March 13, 2013 the Company entered into securities purchase agreements (the “March SPAs”) with five (5) accredited investors (the “March Holders”) for the purchase and sale of $60,000 of convertible notes (the “March 2013 Notes”) convertible into shares of the Company’s Common Stock at a fixed conversion price of $0.02 per share. The March 2013 Notes bear interest at the rate of 10% per annum and mature on September 30, 2014. The March 2013 Notes are convertible at any time at the option of the March Holders (subject to an increase in the Company’s authorized Common Stock, or a reverse split of its existing outstanding Common Stock with no change to its authorized Common Stock). The Company may redeem the March 2013 Notes at any time prior to maturity with twenty (20) days’ prior notice to the March Holders and payment of a premium of 20% on the unpaid principal amount.
Additional 10% Convertible Promissory Note:
On April 11, 2013 and June 27, 2013 the Company received additional funding of $100,000 in principal amount of 10% Convertible Promissory Notes which have not yet been converted into shares of our common stock. The notes are convertible at any time at the option of the holders into shares of our common stock at a conversion price based on 80% of the average of the three lowest closing prices for the common stock during the ten consecutive trading days immediately preceding the conversion request, however the conversion price may not exceed $0.04, and may not be lower than $0.02 per share. Based on the outstanding principal amount of these notes and assuming that interest accrued through December 31, 2014, the due date, the notes would be convertible into approximately 15,000,000 shares of our common stock at a conversion price of $0.02 a share. The CPN also provides for up to an additional $150,000 to be provided to the Company at the lender’s sole discretion.
Note 8
–
12% Secured Promissory Note
On November 8, 2011 Sionix issued a 12% Secured Promissory Note in the principal amount of $300,000 maturing on July 31, 2012. The Company had an optional right of redemption prior to maturity. Sionix was to redeem the note on the maturity date at a redemption premium of 7.5%. Sionix granted to the investor a continuing, first priority security interest in certain property of Sionix to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the Secured Promissory Note, Securities Purchase Agreement, and Pledge Agreement.
In connection with this borrowing, Sionix issued 2,358,491 shares of common stock as Incentive Shares, and 16,981,132 shares of common stock as Pledged Shares. At the Company’s option, the Incentive Shares may be redeemed for cash in the amount of $125,000; otherwise they are retained by the lender. The value of the Incentive Shares has been classified as a liability and is being amortized as interest expense over the term of the borrowing. The Pledged Shares were issued as security under the Pledge Agreement.
The Company issued shares to pay the outstanding balance. After conversions, the amount outstanding as of June 30, 2013 amounted to $0.
Note 9
–
Long Term Debt
10% Convertible Debt (WBI):
On November 26, 2012 Sionix completed the repurchase of all outstanding membership interests in WBI. In return for their membership interests and the release of WBI from any future claims, the Company offered the members the option of receiving a pro-rata share of the remaining capital invested into WBI, or they could assign their rights to their remaining capital to Sionix in return for a convertible note issued by Sionix equal to 100% of their original investment. The pro-rata share calculation did not include Sionix's interest in WBI. The cash available for distribution totaled $854,046 or 63.3% of the original investment of $1,350,000. The Company returned $569,649 of the original capital invested, representing an original investment of $900,000.
The Company issued convertible notes in the amount of $450,000 and received $284,397 of the remaining capital. In addition, the Company received $250,000 of new capital in return for the issuance of an additional note of $394,000, and recognized a debt discount of $144,000 in connection with this new note.
In January and March of 2013, the Company issued additional convertible notes in the amount of $200,000.
The convertible notes issued mature on September 30, 2014, bear an annual interest rate of 10% payable in cash or in kind at our election, and are convertible at the election of the holder into common shares of Sionix at a rate of $0.04.
As part of this offering, the Company paid a placement agent a fee of $45,000 for services rendered in connection with this transaction.
10% Convertible Promissory Note
On April 19, 2013, pursuant to the terms and conditions of that certain securities purchase agreement, the Company issued: i) a convertible promissory note (the “LT Note”) in the principal amount of $155,000 (the “Principal Amount”), including a 10% original issue discount, maturing on August 19, 2014 (the “Maturity Date”) and ii) a five (5) year warrant (the “Warrant”) to purchase that number of shares of the Company’s Common Stock equal to $62,000, convertible at a conversion price as set forth in the LT Note and exercisable at $0.06 per share, as adjusted pursuant to the terms and conditions of the Warrant. The Company paid fees of $5,000 incurred by the lender in connection with the funding of this loan. The Company has the optional right to prepay any portion of the Principal Amount upon providing five (5) days’ notice of such prepayment, provided that the Company must pay the lender 135% of the amount of the Principal Amount it elects to prepay. Interest on the LT Note shall accrue at 8% per annum, provided that upon an Event of Default (as defined in the LT Note) the interest rate shall increase to 18%.
The conversion price for each share of Common Stock issuable pursuant to the LT Note and the Warrant will be $0.03 (the “Conversion Price”), subject to adjustments as set forth in the LT Note and the Warrant;
provided, however
, that, beginning on a date that is 180 days after the date of issuance of the LT Note, the Company shall pay, on a monthly basis, the greater of (i) $15,500, plus the sum of any accrued and unpaid interest as of the applicable installment date and accrued, and unpaid late charges, if any, under the LT Note as of the applicable installment date, and any other amounts accruing or owing to the lender and (ii) the then outstanding balance of the LT Note divided by the number of installment dates remaining prior to the Maturity Date (each, an “Installment Amount’). Notwithstanding any other provision of the LT Note, if any Installment Amount is greater than the then outstanding balance of the LT Note, such Installment Amount shall be reduced to equal such then outstanding balance. The applicable Installment Amount may be paid in cash or in shares of the Company’s Common Stock (a “Company Conversion”). In the event of a Company Conversion the number of shares of Common Stock due to the lender will be based on a conversion price that is equal to the lower of i) the Conversion Price and ii) 70% of the three (3) lowest closing volume-weighted average prices (“VWAPs”) of the Company’s Common Stock for a period of twenty (20) trading days,
provided, however
, that if the arithmetic average of the three (3) lowest VWAPs of the shares of Common Stock during any twenty (20) consecutive trading day period is less than $0.01, then the conversion described above will be based on 65% of the VWAPs.
Note 10
–
Derivative Financial Instruments
The components of embedded derivative liability as reflected in the condensed consolidated balance sheets as of June 30, 2013 and September 30, 2012 are as follows:
|
|
June 30, 2013
|
|
|
September 30, 2012
|
|
|
|
Indexed to
Shares
|
|
|
Fair Value
|
|
|
Indexed to
shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
35,715,905
|
|
|
$
|
668,226
|
|
|
|
4,534,632
|
|
|
$
|
396,129
|
|
The following table summarizes the effects on our gain (loss) associated with changes in the fair values of our derivative financial instruments by type of financing for the nine months ended June 30, 2013 and 2012:
|
|
Nine Months
Ended June 30,
2013
|
|
|
Nine Months
Ended June 30,
2012
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
272,097
|
|
|
$
|
35,538
|
|
The following table summarizes the effects on our gain (loss) associated with changes in the fair values of our derivative financial instruments by type of financing for the three months ended June 30, 2013 and 2012:
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended June 30,
|
|
|
Ended June
|
|
|
|
2013
|
|
|
30, 2012
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
241,520
|
|
|
$
|
36,911
|
|
Note 11
–
Fair Value Consideration
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:
Level 1 valuations: Quoted prices in active markets for identical assets and liabilities.
Level 2 valuations: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable. Level 3 valuations: Significant inputs to valuation model are unobservable.
We follow the provisions of ASC 820, Fair Value Measurements and Disclosures, with respect to our financial instruments. As required by ASC 820, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments which are required to be measured at fair value on a recurring basis under of ASC 815 are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table presents information about the Company’s liabilities measured at fair value as of June 30, 2013 and September 30, 2012:
June 30, 2013
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability - BCF
|
|
$
|
|
|
|
$
|
|
|
|
$
|
668,226
|
|
|
$
|
668,226
|
|
Unregistered shares shortfall - Warrants
|
|
|
|
|
|
|
|
|
|
$
|
1,913,279
|
|
|
$
|
1,913,279
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,581,505
|
|
|
$
|
2,581,505
|
|
|
|
|
|
|
|
|
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September 30, 2012
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Level 1
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Level 2
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Level 3
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Total
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Liabilities:
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|
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Derivative liability - BCF
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$
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|
|
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$
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|
|
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$
|
396,129
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|
$
|
396,129
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|
Unregistered shares shortfall - Warrants
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|
|
|
|
|
|
|
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$
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2,180,220
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$
|
2,180,220
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|
|
|
$
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|
|
|
$
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|
|
|
$
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2,576,349
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|
$
|
2,576,349
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|
Both the derivative liability and unregistered shares shortfall were valued using a black scholes valuation model. The black scholes valuation technique was utilized because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) that are necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock. Because derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility in these estimate and assumption changes.
Significant assumptions in valuing the beneficial conversion feature (“BCF”) and unregistered shares shortfalls - warrants were as follows as of June 30, 2013:
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BCF
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Warrants
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|
Exercise price
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0.012
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|
|
|
0.11
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Risk free rate of return
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0.150
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%
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|
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0.72
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%
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Volatility
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|
335
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%
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|
|
171
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%
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Dividend yield
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|
|
0
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|
|
|
0
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%
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Expected term
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|
|
1
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|
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|
5
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|
Significant assumptions in valuing the beneficial conversion feature (“BCF”) and unregistered shares shortfalls - warrants were as follows as of September 30, 2012:
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ECF
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Warrants
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Exercise price
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0.040
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|
|
0.14
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|
Risk free rate of return
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0.210
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%
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|
|
0.72
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%
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Volatility
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|
|
179
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%
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|
|
171
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%
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Dividend yield
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|
|
0
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|
|
|
0
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%
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Expected term
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|
|
1
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|
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5
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|
The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as Level 3 in the fair value hierarchy:
Balance as of September 30, 2012:
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$
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2,576,349
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|
Gain (loss) on derivative liabilities
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(5,156
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)
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Balance as of June 30, 2013:
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$
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2,581,505
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Note 12 – Income Taxes
For the nine months ended June 30, 2013 and 2012, the accompanying Condensed Consolidated Statements of Operations and Condensed Consolidated Balance Sheets as of June 30, 2013 and September 30, 2012, contain no provision for income taxes and no liability for income taxes as the Company has accumulated net operating loss carry forwards in excess of any income generated by the Company.
Note 13 – Stockholders’ Equity
Common Stock
The Company has 600,000,000 authorized shares of common stock, par value $0.001 per share. As of June 30, 2013, the Company had 473,834,579 shares issued and outstanding. As of September 30, 2012, the Company had 387,968,434 shares of common stock issued and outstanding.
During the nine months ended June 30, 2013, the Company issued 6,680,529 shares of common stock for services to officers, directors and consultants (valued at $202,402) based on closing market prices. The Company also issued 55,642,330 shares of common stock for conversion of debt in the amount of $1,040,649 (including interest), 7,800,000 shares of common stock for cash and issued 15,743,286 shares of common stock for financing costs.
Warrants
Employee Warrants
A summary of the Company’s activity for employee warrants:
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Aggregate
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Weighted Average
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Number of
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Weighted Average
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|
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Intrinsic
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Remaining
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Warrants
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Exercise Price
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Value
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Contractual Life
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Outstanding at October 1, 2012
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43,716,316
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$
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0.12
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$
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-
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3.01
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|
Granted
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500,000
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0.15
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-
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4.75
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Expired
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(3,933,526
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)
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0.21
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-
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-
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Forfeited
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(500,000
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)
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-
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-
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-
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Exercised
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-
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-
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-
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-
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Outstanding at June 30, 2013
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39,782,790
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0.11
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-
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1.73
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Exercisable at June 30, 2013
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39,782,790
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$
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0.11
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$
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-
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1.73
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Outstanding and exercisable as of June 30, 2013:
Exercise Price
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Warrants Outstanding
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Contractual Life
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Weighted Average
Remaining
Options
Exercisable
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Weighted Average
Remaining
Contractual Life
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$
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0.06
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|
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7,415,000
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2.19
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7,415,000
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2.19
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$
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0.07
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2,000,000
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2.50
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2,000,000
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2.50
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$
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0.09
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2,000,000
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2.50
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2,000,000
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2.50
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$
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0.10
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8,416,850
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1.27
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8,416,850
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1.27
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$
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0.12
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8,450,940
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0.78
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8,450,940
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0.78
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$
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0.14
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500,000
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2.92
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500,000
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2.92
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$
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0.15
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11,000,000
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2.19
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11,000,000
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2.19
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39,782,790
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1.73
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39,782,790
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1.73
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During the nine months ended June 30, 2013, the Company granted a total of 500,000 options and warrants to certain officers and employees. The options and warrants vested immediately upon grant and have a term of five years. The weighted average grant-date fair value of these options and warrants was $14,671.
Stock Warrants
A summary of the Company’s warrant activity with non-employees:
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Number of
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Weighted Average
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Warrants
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Exercise Price
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Outstanding at October 1, 2012
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$
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114,460,085
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0.12
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Granted
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3,725,000
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0.02
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Expired
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(6,045,037
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)
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0.22
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Forfeited
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-
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|
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|
-
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Exercised
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|
-
|
|
|
|
-
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Outstanding as of June 30, 2013
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|
$
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112,140,048
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|
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0.11
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|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2013
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$
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112,140,048
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0.11
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|
Warrants outstanding and exercisable as of June 30, 2013:
Exercise
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|
Warrants
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Warrants
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Weighted
Average
Remaining
Contractual
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|
Weighted Average
Exercise Price
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Price
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Outstanding
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Exercisable
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Life
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Outstanding
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Exercisable
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$
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0.02
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3,100,000
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3,100,000
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4.81
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$
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0.02
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$
|
0.02
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$
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0.06
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|
|
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11,262,500
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|
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11,262,500
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|
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2.92
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|
|
$
|
0.06
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|
|
$
|
0.06
|
|
$
|
0.07
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|
|
|
22,833,333
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|
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|
22,833,333
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|
|
|
0.79
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|
|
$
|
0.07
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|
|
$
|
0.07
|
|
$
|
0.08
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|
|
|
25,425,000
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|
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|
25,425,000
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|
|
|
3.87
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|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
$
|
0.10
|
|
|
|
5,754,722
|
|
|
|
5,754,722
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|
|
|
3.06
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
$
|
0.12
|
|
|
|
6,226,000
|
|
|
|
6,226,000
|
|
|
|
0.44
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
$
|
0.14
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
2.31
|
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
$
|
0.15
|
|
|
|
2,107,667
|
|
|
|
2,107,667
|
|
|
|
1.58
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
$
|
0.17
|
|
|
|
24,230,825
|
|
|
|
24,230,825
|
|
|
|
2.61
|
|
|
$
|
0.17
|
|
|
$
|
0.17
|
|
$
|
0.25
|
|
|
|
3,700,000
|
|
|
|
3,700,000
|
|
|
|
0.82
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
$
|
0.30
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
0.08
|
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
|
|
|
|
112,140,048
|
|
|
|
112,140,048
|
|
|
|
2.37
|
|
|
|
|
|
|
|
|
|
Warrants expiring within twelve months of June 30, 2013 total 25,531,856.
Note 14 – Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. Through June 30, 2013, the Company has incurred cumulative losses of $41,947,870, including a net loss for the nine months ended June 30, 2013 of $4,629,919. As the Company has limited cash flow from operations, its ability to maintain normal operations is entirely dependent upon obtaining adequate cash to finance its overhead, research and development activities, and acquisition of production equipment. It is unknown when, if ever, the Company will achieve a level of revenues adequate to support its costs and expenses. In order for the Company to meet its basic financial obligations, including salaries, debt service and normal operating expenses, it plans to sell additional units of its water treatment systems, and to seek additional equity or debt financing. Because of the Company’s history and current debt levels, there is considerable doubt that the Company will be able to obtain financing. The Company’s ability to meet its cash requirements for the next twelve months depends on its ability to obtain such financing. Even if financing is obtained, any such financing will likely involve additional fees and debt service requirements which may significantly reduce the amount of cash we will have for our operations. Accordingly, there is no assurance that the Company will be able to implement its plans.
As mentioned in Notes 6, 7, 8 and 9, the Company has related party notes, convertible notes, and subordinated debentures that have matured. The Company is continuing its efforts to obtain customers for its products expand its sales efforts worldwide and expand the industries it targets for possible customers. The Company also has future plans for additional products, and revisions to its current products. In support of this the Company plans to hire additional personnel who have the industry experience and the training so that they can be immediately effective in the building of the Company. The Company has dedicated significant resources to apply its technology to the treatment of both production and flow back water from oil and gas fracking operations. Field and laboratory tests were conducted in the Bakken Shale area of North Dakota and the Company will continue to develop commercial opportunities to treat both production and flow back water for reuse in fracking as a strategic market objective. The Company is also continuing to seek additional investment capital in the form of debt or equity to continue operations, and is considering certain changes to its capital structure to become more attractive to potential investors and business partners.