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STOCK PURCHASE WARRANTS

9 Months Ended

Sep. 30, 2014

During the nine months ended September 30, 2014, the Company issued 470,000 common stock warrants to investors and 45,000 common stock warrants to the placement agents in connection with the additional closings related to the 2013 Common Stock Offering.

In addition, during the nine months ended September 30, 2014, the Company exchanged 546,470 common stock warrants for an equal number of warrants with the same terms as the warrants issued in the 2013 sale of Series B preferred stock. As a result of this exchange and because such new warrants are derivative instruments, the Company increased its derivative warrant liability by approximately $115,000, the fair value of the warrants on the date of the modification. In addition, in conjunction with the exchange, the Company recognized a one-time expense of approximately $82,000 representing the incremental fair value resulting from the modification, which is included in the accompanying statements of operations.

During the nine months ended September 30, 2014, various warrant holders exercised rights to purchase 180,750 shares of the Company’s common stock, with an average exercise price of $0.50 per share, pursuant to a cash exercise whereby the Company received cash proceeds of $90,375.

During the year ended December 31, 2013, the Company issued 7,621,070 common stock warrants to investors and 82,772 common stock warrants to the placement agents in connection with the sale of Series B preferred stock. These warrants are recorded as derivative warrant liability. In addition, the Company issued 1,285,000 common stock warrants to investors and 128,500 common stock warrants to placement agents in connection with the 2013 Common Stock Offering.

As a result of the issuance of common stock pursuant to the 2013 Common Stock Offering, the exercise price of the warrants issued in connection with sale of Series B preferred stock was reduced from $0.83 to $0.50, provided, however, Platinum waived its right to adjust the exercise price of the 6,020,214 warrants held by it and accordingly, such exercise price remained $0.83 per share, as of December 31, 2013, solely with respect to Platinum. In April 2014, the Company issued common stock for services performed pursuant to a service agreement. The shares of common stock were issued at the market value of $0.53 per share. As a result of this issuance, the exercise price of the remaining warrants issued in connection with the Series B preferred stock, including the warrants issued to Platinum, was reduced to $0.53.

In addition, during the year ended December 31, 2013, the Company exchanged 426,096 common stock warrants for an equal number of warrants with the same terms as the warrants issued in the Series B Offering. As a result of this exchange and because such warrants are derivative instruments, the Company increased its derivative warrant liability by approximately $114,000, the fair value of the warrants on the date of the modification. In addition, in conjunction with the exchange, the Company recognized a one-time expense of approximately $30,000 representing the incremental fair value resulting from the modification.

The following is a summary of all common stock warrant activity:

	Number of Shares Under Warrants			Exercise Price Per Share		Weighted Average Exercise Price
Warrants issued and exercisable at December 31, 2013		14,616,535		$	0.50 - 1.33	$	0.90
Warrants Granted		1,061,470		$	0.83	$	0.83
Warrants Expired/Forfeited/Exchanged		(643,220	)	$	0.50 - 1.33	$	0.87
Warrants Exercised		(180,750	)	$	0.50	$	0.50
Warrants issued and exercisable at September 30, 2014		14,854,035		$	0.50 - 1.33	$	0.76

The following represents additional information related to common stock warrants outstanding and exercisable at September 30, 2014:

Exercise Price		Number of Shares Under Warrants		Weighted Average Remaining Contract Life in Years		Weighted Average Exercise Price
$	0.50		2,109,724		4.01	$	0.50
$	0.53		6,566,684		4.00	$	0.53
Total warrants accounted for as derivative liability			8,676,408		4.01	$	0.52

$	0.83		2,379,046		3.67	$	0.83
$	0.84		20,000		1.84	$	0.84
$	0.85		281,912		2.82	$	0.85
$	0.95		20,000		2.01	$	0.95
$	1.00		165,417		4.60	$	1.00
$	1.33		3,311,252		0.76	$	1.33
Total warrants accounted for as equity			6,177,627		2.08	$	1.10
Total for all warrants outstanding			14,854,035		3.20	$	0.76

The Company used the Black-Scholes option price calculation to value the warrants granted during the nine months ended September 30, 2014 using the following assumptions: risk-free rate of 1.62%, respectively, volatility of 60.13%, actual term and exercise price of warrants granted. For warrants granted that are accounted for as a derivative liability, the Company used a Binomial Options Pricing model. The primary assumptions used to determine the fair values of these warrants were: risk free interest rate with a range from 1.59 % - 3.40%, volatility of 60.13%, actual term and exercise price of the warrants granted.