0001615774-16-005455.txt : 20160516 0001615774-16-005455.hdr.sgml : 20160516 20160516161009 ACCESSION NUMBER: 0001615774-16-005455 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 62 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160516 DATE AS OF CHANGE: 20160516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYnd Analytics, Inc. CENTRAL INDEX KEY: 0000822370 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 870419387 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35527 FILM NUMBER: 161653822 BUSINESS ADDRESS: STREET 1: 85 ENTERPRISE STREET 2: SUITE 410, CITY: ALISO VIEJO STATE: CA ZIP: 92656 BUSINESS PHONE: (714) 545 3288 MAIL ADDRESS: STREET 1: 85 ENTERPRISE STREET 2: SUITE 410, CITY: ALISO VIEJO STATE: CA ZIP: 92656 FORMER COMPANY: FORMER CONFORMED NAME: CNS RESPONSE, INC. DATE OF NAME CHANGE: 20070313 FORMER COMPANY: FORMER CONFORMED NAME: STRATIVATION, INC. DATE OF NAME CHANGE: 20051115 FORMER COMPANY: FORMER CONFORMED NAME: SalesTactix, Inc. DATE OF NAME CHANGE: 20040805 10-Q 1 s103228_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x           Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2016

 

¨           Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________________ to ______________________.

 

Commission file number 001-35527

 

MYnd Analytics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   87-0419387
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

 

 

26522 La Alameda, Suite 290

Mission Viejo, California 92691

(Address of principal executive offices) (Zip Code)

 

(949) 420-4400

(Registrant’s telephone number, including area code)

 

(Former name, former address, former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

  Yes x No  ¨

  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer ¨    (Do not check if smaller reporting company) Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes  ¨ No  x

 

As of May 13, 2016, the issuer had 107,467,409 shares of common stock, par value $0.001 per share, issued and outstanding.

 

 

 

   

 

 

MYnd Analytics, Inc.

 

INDEX

 

      Page
       
PART I FINANCIAL INFORMATION   2
       
Item 1. Financial Statements   2
       
  Unaudited Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2016 and 2015   2
       
  Condensed Consolidated Balance Sheets as of March 31, 2016 (unaudited) and September 30, 2015   3
       
  Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2016 and 2015   4
       
  Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the six months ended March 31, 2016   5
       
  Notes to Unaudited Condensed Consolidated Financial Statements   6
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   24
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   41
       
Item 4. Controls and Procedures   41
       
PART II OTHER INFORMATION   42
       
Item 1. Legal Proceedings   42
       
Item 1A. Risk Factors   42
       
Item 2. Unregistered Sales of Equity Security and Use of Proceeds   42
       
Item 6. Exhibits   42

 

 1 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1.       Financial Statements

 

MYND ANALYTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

   For the three months ended
March 31,
   For the six months ended
March 31,
 
   2016   2015   2016   2015 
REVENUES                    
Neurometric Services  $20,700   $20,900   $45,400   $43,700 
                     
Cost of neurometric services revenue   1,400    1,800    2,700    2,900 
Research   22,700    22,900    45,300    46,700 
Product development   183,000    191,900    306,400    437,500 
Sales and marketing   133,000    175,200    256,100    264,900 
General and administrative   370,600    409,200    749,600    851,900 
                     
Total operating expenses   710,700    801,000    1,360,100    1,603,900 
                     
OPERATING LOSS   (690,000)   (780,100)   (1,314,700)   (1,560,200)
                     
OTHER INCOME (EXPENSE):                    
Interest expense, net   (239,600)   (54,600)   (739,800)   (106,000)
Loss on extinguishment of debt   -    -    (2,337,400)   - 
Gain on derivative liabilities   786,900    139,200    798,200    99,300 
Total other income (expense)   547,300    84,600    (2,279,000)   (6,700)
LOSS BEFORE PROVISION FOR INCOME TAXES   (142,700)   (695,500)   (3,593,700)   (1,566,900)
Provision for income taxes   -    800    300    4,000 
NET LOSS  $(142,700)  $(696,300)  $(3,594,000)  $(1,570,900)
                     
BASIC AND DILUTED LOSS PER SHARE:                    
From continuing operations  $(0.00)  $(0.01)  $(0.04)  $(0.02)
                     
WEIGHTED AVERAGE SHARES OUTSTANDING:                    
Basic and Diluted   102,669,022    101,667,409    102,543,215    101,667,409 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 2 

 

  

MYND ANALYTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS  

 

   Unaudited
as at
March 31,
   Audited
as at
September 30,
 
   2016   2015 
ASSETS          
CURRENT ASSETS:          
Cash  $440,200   $432,100 
Accounts receivable (net of allowance for doubtful accounts of $1,200 and $1,200 as of March 31, 2016, and September 30, 2015, respectively)   6,800    11,800 
Prepaid insurance   111,700    57,400 
Prepaid other assets   58,900    46,900 
Total current assets   617,600    548,200 
Furniture and equipment, net   7,700    1,700 
Intangible assets   9,000    - 
Other assets   25,600    17,200 
TOTAL ASSETS  $659,900   $567,100 
           
 LIABILITIES AND STOCKHOLDERS’ DEFICIT:           
CURRENT LIABILITIES:          
Accounts payable (including $10,000 and $10,000 to related parties as of March 31, 2016, and September 30, 2015, respectively)  $744,200   $852,000 
Accrued liabilities   182,600    156,300 
Accrued compensation   433,000    418,500 
Accrued compensation – related parties   259,700    226,100 
Deferred revenue - grant funds   45,900    45,900 
Current portion of capital lease   1,700    2,400 
Total current liabilities   1,667,100    1,701,200 
           
LONG-TERM LIABILITIES          
Secured convertible debt – related parties (net of discounts $363,100 and $209,900 as of March 31, 2016 and September 30, 2015, respectively)   3,346,900    2,240,100 
Secured convertible debt - other (net of discounts $30,700 and $28,900 as of March 31, 2016, and September 30, 2015, respectively)   619,300    525,700 
Accrued interest   192,400    103,600 
Derivative liability   1,441,700    833,000 
Long term portion of capital lease   5,400    - 
Total long-term liabilities   5,605,700    3,702,400 
TOTAL LIABILITIES   7,272,800    5,403,600 
STOCKHOLDERS’ DEFICIT:          
Common stock, $0.001 par value; authorized 500,000,000 shares and issued and outstanding 102,717,409 shares and 102,417,409 shares as of March 31, 2016 and September 30, 2015, respectively   102,700    102,400 
Additional paid-in capital   59,471,300    57,654,000 
Accumulated deficit   (66,186,900)   (62,592,900)
Total stockholders’ deficit   (6,612,900)   (4,836,500)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $659,900   $567,100 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 3 

 

  

MYND ANALYTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the six months ended
March 31,
 
   2016   2015 
OPERATING ACTIVITIES:          
Net loss  $(3,594,000)  $(1,570,900)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   2,700    4,400 
Loss on derivative liability valuation   (798,200)   (67,300)
Valuation of warrants – investor relations   -    21,600 
Stock based compensation   70,900    162,200 
Grant of common stock   6,900    - 
Loss on extinguishment of debt   2,337,400    - 
Financing expenses   738,600    72,700 
Changes in operating assets and liabilities:          
Accounts receivable   5,000    3,900 
Prepaids and other   (66,300)   (56,500)
Accounts payable and accrued liabilities   (81,600)   12,300 
Security deposits   (9,400)   - 
Deferred compensation   48,100    73,900 
Net cash used in operating activities   (1,339,900)   (1,343,700)
INVESTING ACTIVITIES:          
   Purchase of fixed assets   (1,000)   - 
   Intangible assets   (9,000)   - 
Net cash used in investing activities   (10,000)   - 
FINANCING ACTIVITIES:          
Repayment of a capital lease   (2,000)   (1,900)
Net proceeds from issuance of secured convertible debt   1,360,000    415,000 
Net cash provided by (used in) financing activities   1,358,000    413,100 
NET INCREASE (DECREASE) IN CASH   8,100    (930,600)
CASH- BEGINNING OF THE QUARTER   432,100    1,240,600 
CASH- END OF THE QUARTER  $440,200   $310,000 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid during the period for:          
Interest  $1,300   $1,500 
Income taxes  $300   $4,000 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 4 

 

  

MYND ANALYTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED MARCH 31, 2016

 

   Common Stock   Additional 
Paid-in
   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance at September 30, 2015 (Audited)   102,417,409   $102,400   $57,654,000   $(62,592,900)  $(4,836,500)
Stock-based compensation           70,900        70,900 
Extension Warrants issued to note holders           1,196,000        1,196,000 
Note Warrants issued to note holders           543,800        543,800 
Stock issued to vendor   300,000    300    6,600        6,900 
Net loss               (3,594,000)   (3,594,000)
Balance at March 31, 2016   102,717,409   $102,700   $59,471,300   $(66,186,900)  $(6,612,900)

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 5 

 

  

MYND ANALYTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.NATURE OF OPERATIONS

 

At our annual meeting of stockholders held on October 28, 2015, our stockholders approved a proposal to change the Company’s name to MYnd Analytics, Inc. from CNS Response, Inc. The Company’s charter was officially amended on November 2, 2015.

 

MYnd Analytics, Inc. (“MYnd,” “CNS,” “we,” “us,” “our,” or the “Company”), formerly known as CNS Response Inc., was incorporated in Delaware on March 20, 1987, under the name Age Research, Inc.  Prior to January 16, 2007, the Company (then called Strativation, Inc.) was a “shell company” with nominal assets and our sole business was to identify, evaluate and investigate various companies to acquire or with which to merge.  On January 16, 2007, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CNS Response, Inc., a California corporation formed on January 11, 2000 (“CNS California”), and CNS Merger Corporation, a California corporation and the Company’s wholly-owned subsidiary (“MergerCo”) pursuant to which the Company agreed to acquire CNS California in a merger transaction wherein MergerCo would merge with and into CNS California, with CNS California being the surviving corporation (the “Merger”). On March 7, 2007, the Merger closed, CNS California became a wholly-owned subsidiary of the Company, and on the same date the corporate name was changed from Strativation, Inc. to CNS Response, Inc. At the annual meeting held on October 28, 2015, stockholders approved a change in our name from CNS Response, Inc. to MYnd Analytics, Inc. On November 2, 2015, the Company filed an amendment to its Articles of Incorporation which, among other things, effected the name change to MYnd Analytics, Inc.

 

The Company is a predictive analytics company that provides objective clinical decision support to mental healthcare providers for the personalized treatment of behavioral disorders, including depression, anxiety, bipolar disorder, post-traumatic stress disorder (“PTSD”) and other non-psychotic disorders. The Company uses its proprietary neurometric platform, PEER Online, to generate Psychiatric EEG Evaluation Registry (“PEER”) Reports to predict the likelihood of response by an individual to a range of medications prescribed for the treatment of behavioral disorders. Management intends to conduct a series of clinical trials, termed in aggregate the SMART-MD trials. The protocols used in this series of trials will be substantially similar to the protocol approved by the Walter Reed Institutional Review Board (the "Walter Reed IRB") during our 2013-2014 clinical trial at Walter Reed National Military Medical Center (“Walter Reed”) and Fort Belvoir Community Hospital (“Fort Belvoir”) (collectively, the “Walter Reed PEER Trial”). The protocol utilizes our neurometric platform to provide PEER Reports to clinicians treating patients with a primary diagnosis of depression with various comorbidities allowed, if present, to include PTSD and mild traumatic brain injury (“mTBI). The first trial in the series is the Canadian Forces Trial followed by parallel trials in Southern California, the SoCal Trial, and other U.S. locations. The protocols for the Canadian Forces Trial and the SoCal Trial have been approved by their respective institutional review boards and are ready for initiation and the recruitment of study subjects. The objective of the SMART-MD trials is to provide additional information to demonstrate the clinical and economic utility of our neurometric platform. We are in discussions to conduct additional studies with other groups and organizations. We are also focusing our direct-to-consumer marketing efforts using social media within California to boost our commercialization of the PEER Online platform and its PEER Reports.

  

Going Concern Uncertainty

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which contemplate continuation of the Company as a going concern. The Company has a limited operating history and its operations are subject to certain challenges, expenses, difficulties, delays, complications, risks and uncertainties frequently encountered in the operation of a business with a limited operating history. These risks include the ability to obtain adequate financing on a timely basis, if at all, the failure to develop or supply technology or services to meet the demands of the marketplace, the failure to attract and retain qualified personnel, competition within the industry, government regulation and the general strength of regional and national economies.

 

The Company’s continued operating losses and limited capital raise substantial doubt about its ability to continue as a going concern. The Company has limited cash resources for its operations and will need to raise additional funds to meet its obligations as they become due. As of March 31, 2016, we had an accumulated deficit of $66,186,900. For the six months ended March 31, 2016 and 2015, we had net losses from operations of $1,314,700 and $1,560,200 respectively. Net cash used in operating activities for the six months ended March 31, 2016 and 2015, were $1,339,900 and $1,343,700 respectively.

  

 6 

 

  

To date, the Company has financed its cash requirements primarily from debt and equity financings.  The Company will need to raise additional funds immediately to continue its operations and needs to raise substantial additional funds before the Company can increase demand for its PEER Online services. Until it can generate a sufficient amount of revenues to finance its cash requirements, which it may never do, the Company must continue to finance future cash needs primarily through public or private equity offerings, debt financings, borrowings or strategic collaborations. The Company’s liquidity and capital requirements depend on several factors, including the rate of market acceptance of its services, the future profitability of the Company, the rate of growth of the Company’s business and other factors described elsewhere in this Quarterly Report on Form 10-Q.  The Company continues to explore additional sources of capital, but there is substantial doubt as to whether any financing arrangement will be available in amounts and on terms acceptable to the Company to permit it to continue operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

  

Between September 22, 2014, and March 31, 2016, the Company issued secured convertible debt in the aggregate principal amount of $4,360,000. During the fiscal year ended September 30, 2015, the aggregate gross proceeds to the Company were $1,350,000 from the debt offering. Additionally, for the six months ended March 31, 2016, the Company issued secured convertible debt in the aggregate principal amount of $1,360,000. 

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and are in accordance with accounting principles generally accepted in the United States of America.

 

Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, doubtful accounts, intangible assets, income taxes, valuation of equity instruments, accrued liabilities, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

 

Cash

 

The Company deposits its cash with major financial institutions and may at times exceed the federally insured limit of $250,000.  At March 31, 2016 cash exceeds the federally insured limit by $190,200.  The Company believes that the risk of loss is minimal. To date, the Company has not experienced any losses related to cash deposits with financial institutions.

  

Derivative Liabilities

 

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of March 31, 2016, the Company’s only derivative financial instruments were a series of convertible notes having embedded derivative liabilities based on the conversion price of the note relative to the market price of a share of Common Stock on the valuation date. See Notes 3 & 4. 

 

Fair Value of Financial Instruments

 

ASC 825-10 defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

 

The Company also analyzes all financial instruments with features of both liabilities and equity under ASC 480-10, ASC 815-10 and ASC 815-40.

 

 7 

 

  

The Company adopted ASC 820-10 on January 1, 2008. ASC 820-10 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

·Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
·Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments; and
·Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

The Company used Level 3 inputs for its valuation methodology for the conversion option liability in determining the fair value using the Black-Scholes option-pricing model with the following assumption inputs:

 

   March 31,
2016
   September 30,
2015
 
Annual dividend yield   -    - 
Expected life (years)   1.75    0.5 
Risk-free interest rate   0.73%   0.08%
Expected volatility   225.53%   48%

 

   Carrying Value   Fair Value Measurements at 
   As of   March 31, 2016 
   March 31,   Using Fair Value Hierarchy 
   2016   Level 1   Level 2   Level 3 
Liabilities                    
Embedded derivative liabilities   1,441,700    -    -    1,441,700 
Total  $1,441,700   $-   $-   $1,441,700 

  

   Carrying Value   Fair Value Measurements at 
   As of   September 30, 2015 
   September 30,   Using Fair Value Hierarchy 
   2015   Level 1   Level 2   Level 3 
Liabilities                    
Embedded derivative liabilities   833,000    -    -    833,000 
Total  $833,000   $-   $-   $833,000 

 

For a roll-forward analysis of embedded derivative liabilities refer to Note 4. Derivative Liabilities

 

At March 31, 2016 and September 30, 2015, the Company had derivative liabilities of $1,441,700 and $833,000 respectively. For the six months ending March 31, 2016 and 2015, the Company had gains on the fair valuation of derivative liabilities of $798,200 and a $99,300 on fair valuation of derivative liabilities respectively.  As of March 31, 2016, the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 825-10.

 

Accounts Receivable

 

The Company estimates the collectability of customer receivables on an ongoing basis by reviewing past-due invoices and assessing the current creditworthiness of each customer.  Allowances are provided for specific receivables deemed to be at risk for collection which as of March 31, 2016 and September 30, 2015 were $1,200 and $1,200 respectively.

 

Furniture and Equipment

 

Furniture and Equipment, which are recorded at cost, consist of office furniture, equipment and purchased intellectual property which are depreciated, or amortized in the case of the intellectual property, over their estimated useful life on a straight-line basis.  The useful life of these assets is estimated to be between three and ten years.  Depreciation and amortization for the six months ended March 31, 2016 and 2015 was $2,700 and $4,400 respectively.  Accumulated depreciation and amortization at March 31, 2016 and September 30, 2015 was $74,900 and $82,600, respectively.

   

 8 

 

  

Long-Lived Assets

 

As required by ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), the Company reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. No impairment loss was recorded for the six months ended March 31, 2016 and 2015.

 

Intangible Assets

 

Costs for software developed for internal use are accounted for through the capitalization of those costs incurred in connection with developing or obtaining internal-use software. Capitalized costs for internal-use software are included in intangible assets in the consolidated balance sheet. Capitalized software development costs are amortized over three years. Costs incurred during the preliminary project along with post-implementation stages of internal use computer software development and costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability of development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility and estimated economic life. At March 31, 2016, the Company had $9,000 in capitalized software development of which $9,000 was capitalized during the three and six months ended March 31, 2016. The Company will begin amortizing the software over its estimated economic life once it has been placed into service. For the three and six months ended March 31, 2016, there has been no amortization expense for capitalized software development as it has not been placed into service.

 

Accounts Payable

 

Accounts payable consists of trade payables of which $405,700 and $476,900 are for legal services at March 31, 2016 and 2015 respectively.

 

Deferred Revenue

 

Deferred revenue represents revenue collected but not earned as of March 31, 2016. This represents a philanthropic grant for the payment of PEER Reports ordered for a clinical trial, which are otherwise not paid for by the military. These deferred revenue grant funds as of March 31, 2016 and 2015 are $45,900 for both periods.

 

Revenues

 

The Company recognizes revenue on services, being the delivery of PEER Reports to medical providers, in accordance with the Financial Accounting Standards Board (“FASB”) ASC No. 605, “Revenue Recognition.”  In all cases, revenue is recognized when we have persuasive evidence of an arrangement, a determinable fee, when collection is considered to be reasonable assured and the services are delivered.

 

Research and Development Expenses

 

The Company charges all research and development expenses to operations as incurred.

 

Advertising Expenses

 

The Company charges all advertising expenses to operations as incurred. For the six months ended March 31, 2016 and 2015 advertising expenses were $85,100 and $29,000 respectively.

 

Stock-Based Compensation

 

The Company has adopted ASC 718-20 and related interpretations which establish the accounting for equity instruments exchanged for employee services. Under ASC 718-20, share-based compensation cost to option grantee, being employees and directors, and is measured at the grant date based on the calculated fair value of the award (see Note 5 for further discussion on valuations). The expense is recognized over the option grantees’ requisite service period, generally the vesting period of the award.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method.  Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

 9 

 

  

As a result of the implementation of certain provisions of ASC 740, Income Taxes, which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes.  The Company adopted the provisions of ASC 740 and have analyzed filing positions in each of the federal and state jurisdictions where required to file income tax returns, as well as all open tax years in these jurisdictions.  We have identified the U.S. Federal and California as our "major" tax jurisdictions.  Generally, we remain subject to Internal Revenue Service examination of our 2010 through 2014 U.S. federal income tax returns, and remain subject to California Franchise Tax Board examination of our 2010 through 2014 California Franchise Tax Returns.  However, we have certain tax attribute carryforwards which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.

 

We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position.  Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.  In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740.  Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes.

  

Comprehensive Income (Loss)

 

ASC 220-10 requires disclosure of all components of comprehensive income (loss) on an annual and interim basis.  Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.  The Company’s comprehensive income (loss) is the same as its reported net income (loss) for the six months ended March 31, 2016 and 2015.

 

Earnings (Loss) per Share

  

Basic earnings (loss) per share are computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised and converted into Common Stock.

  

Recent Accounting Pronouncements

 

Apart from the below-mentioned recent accounting pronouncements, there are no new accounting pronouncements that are currently applicable to the Company.

 

In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03 is to simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this Update. The amendments in this ASU are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of the standard update to have a material impact on its consolidated financial position or results of operations. 

 

3.CONVERTIBLE DEBT AND EQUITY FINANCINGS

 

Between September 22, 2014, and July 20, 2015, the Company entered into a Note Purchase Agreement (the “Original Note Purchase Agreement”) in connection with a bridge financing, with nine accredited investors, including lead investor RSJ Private Equity investiční fond s proměnným základním kapitálem (“RSJ PE”). Pursuant to the Original Note Purchase Agreement, the Company issued fifteen secured convertible promissory notes (each, a “September 2014 Note”) in the aggregate principal amount of $2.29 million. Of this amount, RSJ PE purchased a September 2014 Note for $750,000. The September 2014 Notes were also purchased by the following affiliates of the Company or entities under their control: RSJ PE, of which Michal Votruba is a director, purchased a September 2014 Note for $750,000, the Company’s director, John Pappajohn, purchased three September 2014 Notes for $400,000; the Follman Family Trust of which Robert Follman, a director of the Company, is a trustee, purchased a September 2014 Note for $100,000; The Tierney Family Trust, which is a greater than 5% stockholder of the Company, purchased five September 2014 Notes for $540,000, of which Thomas Tierney, a former director and Chairman of the Board of the Company (the “Board”), is a trustee; and Oman Ventures, of which Mark Oman, a greater than 5% stockholder of the Company, is the President, purchased a September 2014 Note for $200,000.  Michal Votruba joined our Board on July 30, 2015

 

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The Original Note Purchase Agreement provided for the issuance and sale of September 2014 Notes in the aggregate principal amount of up to $2.5 million, in one or more closings to occur over a six-month period beginning September 22, 2014. The Original Note Purchase Agreement also provided that the Company and the holders of the September 2014 Notes enter into a registration rights agreement covering the registration of the resale of the shares of the Common Stock underlying the September 2014 Notes.

 

On April 14, 2015, the Company entered into Amendment No. 1 to the Original Note Purchase Agreement with the majority of the noteholders in principal, dated as of April 14, 2015 (“Amendment No. 1”), pursuant to which: (i) the aggregate principal amount of notes provided for issuance was increased by $0.5 million to a total of $3.0 million, and (ii) the period to raise the $3.0 million was extended to September 30, 2015. The Company subsequently amended and restated the Original Note Purchase Agreement solely to update for the changes made pursuant to Amendment No. 1 (such amended and restated agreement, together with the Original Note Purchase Agreement, the “Note Purchase Agreement”).

 

On September 14, 2015, the Company entered into an Omnibus Amendment (the “Omnibus Amendment”) to the Note Purchase Agreement and the notes purchased and sold pursuant thereto, with the majority of the noteholders to fix the conversion price of all notes at $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock) (the “Fixed Conversion Price”) (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price.

 

Subsequently thereto, on September 14, 15 and 24, 2015, the Company entered into a Note Purchase Agreement, as amended by the Omnibus Amendment, with each of six accredited investors, in connection with a bridge financing. Pursuant to these Note Purchase Agreements, the Company issued an aggregate principal amount of $710,000 of secured convertible promissory notes (collectively, the “September 2015 Notes,” and together with the September 2014 Notes all other notes purchased and sold pursuant to the Note Purchase Agreement, the “Notes”), which amount also represents the gross proceeds to the Company from the September 2015 Notes. Four of the six September 2015 Notes were purchased by affiliates of the Company, or an entity under such affiliate’s control, as follows: (i) Dr. Robin Smith, Chairman of the Board, purchased a Note for $60,000; (ii) the Follman Family Trust purchased a Note for $150,000; (iii) John Pappajohn purchased a Note for $100,000 and (iv) RSJ PE, purchased a Note for $350,000.

 

  Through December 23, 2015, and prior to further amendments to the Notes, all of the Notes were scheduled to mature on March 21, 2016, (subject to earlier conversion or prepayment), and earned interest at a rate of 5% per annum with interest payable at maturity. The Notes could not be prepaid without the prior written consent of the holder of such Note. The Notes were secured by a security interest in the Company’s intellectual property, as detailed in a security agreement. Upon a change of control of the Company, the holder of a Note had the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

 

On December 23, 2015, the Company entered into a Second Amended and Restated Note and Warrant Purchase Agreement (which further amended and restated the Note Purchase Agreement, as modified by the Omnibus Amendment) (the "Second Amended Note & Warrant Agreement") with each of 16 accredited investors, pursuant to which (i) the aggregate principal amount of Notes available for issuance was increased from $3.0 million to up to $6.0 million, (ii) the maturity date of the Notes outstanding prior to such amendment was extended from March 21, 2016 to December 31, 2017; (iii) the time during which Notes may be issued was extended and (iv) certain warrants were issued to holders of both previously issued and Notes issued under the Second Amended Note & Warrant Agreement.

 

Pursuant to the Second Amended Note & Warrant Agreement, on December 23 and December 28, 2015, the Company issued to the two purchasers thereof (i) an aggregate principal amount of $1,000,000 of secured convertible promissory notes (each, a "December 2015 Note"), which amount also represents the gross proceeds to the Company from the December 2015 Notes, and (ii) a warrant to each holder of December 2015 Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their December 2015 Note (each, a "Note Warrant"). Each Note Warrant is exercisable, in whole or in part, during the period beginning on the date of its issuance, and ending on the earlier of (i) December 31, 2020 and (ii) the date that is forty-five (45) days following the date on which the daily closing price of shares of the Company's Common Stock quoted on the OTCQB Venture Marketplace (or other bulletin board or exchange on which the Company's Common Stock is traded or listed) exceeds $0.25 for at least ten (10) consecutive trading days. In connection therewith, the Company will promptly notify the Note Warrant holders in the event that the daily closing price of the Company's shares of Common Stock so exceeds $0.25 for at least ten (10) consecutive trading days. Both December 2015 Notes and Note Warrants were purchased by affiliates of the Company, or an entity under such affiliate’s control, as follows: (i) on December 23, 2015, John Pappajohn, a member of the Board, purchased a December 2015 Note for $250,000 and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock; and (ii) on December 28, 2015, RSJ PE, of which, Michal Votruba, a member of the Board, is the Director for Life Sciences for the RSJ/Gradus Fund, purchased a December 2015 Note for $750,000 and was issued a Note Warrant to purchase 15,000,000 shares of Common Stock.

 

Between February 23, 2016 and March 31, 2016, the Company issued to the three accredited investor purchasers thereof (i) an aggregate principal amount of $360,000 in Notes and (ii) and a warrant to each holder of such Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their respective Note (each, also a "Note Warrant"). A total of 7,200,000 shares of Common Stock in the aggregate underlie these Note Warrants. Two of the purchasers were affiliates of the Company as follows: (i) Geoffrey E. Harris, a member of the Board, purchased a Note on February 23, 2016, for $10,000 and was issued a Note Warrant to purchase 200,000 shares of Common Stock and; (ii) John Pappajohn, a member of the Board, purchased a 2015 Note on March 31, 2016, for $250,000, and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock.

 

 11 

 

  

The table below provides additional detail regarding the Notes as of March 31, 2016, with respect to the carrying value and discount on the Balance Sheet.

 

      As of March 31, 2016 
Note Type and Investor  Due Date  Balance   Discount   Carrying
Value
 
Senior Secured 5% Notes Convertible at $0.05
(the “Notes”)
      ($)    ($)    ($) 
 Related Parties:                  
RSJ Private Equity  12/31/2017  $1,850,000   $(211,100)  $1,638,900 
John Pappajohn  12/31/2017   800,000    (147,300)   652,700 
Tierney Family Trust  12/31/2017   540,000    -    540,000 
Follman Family Trust  12/31/2017   250,000    -    250,000 
Oman Ventures  12/31/2017   200,000    -    200,000 
Robin L. Smith  12/31/2017   60,000    -    60,000 
Geoffrey E. Harris  12/31/2017   10,000    (4,700)   5,300 
Total Related Parties      3,710,000    (363,100)   3,346,900 
Others:                  
11 Accredited Investors  12/31/2017   650,000    (30,700)   619,300 
Total Secured Convertible Promissory Notes     $4,360,000   $(393,800)  $3,966,200 

 

Also on December 23, 2015, in consideration for the agreement to extend the maturity date of the Notes, the Company issued to holders of all Notes outstanding prior to the date of the Second Amended Note & Warrant Agreement, warrants to purchase an aggregate of 60,000,000 shares of Common Stock (the "Extension Warrants", together with the Note Warrants, the "Warrants"). All Warrants have identical terms. Each such holder was issued an Extension Warrant to purchase Common Stock in an amount equal to 100% of the shares underlying each such holder's previously outstanding Notes. For additional detail refer to the warrant section of Note 5. Stockholders’ Deficit.

 

Pursuant to the Second Amended and Restated Note and Warrant Agreement, all Notes: (i) mature on December 31, 2017 (subject to earlier conversion or prepayment), (ii) earn interest at a rate of 5% per annum with interest payable at maturity, and (iii) are convertible into shares of Common Stock (a) automatically upon the closing of a qualified offering of no less than $5 million, at a conversion price of $0.05 per share or (b) voluntarily, within 15 days prior to maturity, at a conversion price of $0.05 per share. No Note may be prepaid without the prior written consent of the holder of such Note. The Notes are secured by a security interest in the Company's intellectual property, as detailed in the amended and restated security agreement. Upon a change of control of the Company (as described in the Notes), the holder of a Note will have the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

 

4.DERIVATIVE LIABILITIES

 

At September 30, 2015 the Notes totaled $3.0 million and the derivative liability value was determined to be $833,000. For the fiscal year ended September 30, 2015, gains on derivatives liabilities totaled $162,800.

On December 23, 2015, the Company entered into the Second Amended Note & Warrant Agreement, with each of 16 accredited investors, pursuant to which (i) the aggregate principal amount of Notes available for issuance was increased from $3.0 million to up to $6.0 million, (ii) the maturity date of currently outstanding Notes was extended from March 21, 2016 to December 31, 2017; (iii) the time during which Notes may be issued was extended and (iv) certain warrants were issued to holders of both previously issued and newly issued Notes. Consequently, the existing notes totaling $3 million, plus $121,900 of accrued interest thereon, for an aggregate total debt of $3,121,900 was revalued on December 23, 2015, and on the prior trading day, December 22, 2015, to determine the impact on derivative valuation. On December 22, 2015, the derivative liability of the aggregate debt was determined to be $60,200, which resulted in a write down of $772,800 from the derivative liability balance of $833,000 at September 30, 2015, which resulted in a Gain on Derivative Liabilities of $772,800.

On December 23, 2015, all the Notes were revalued with the maturity date extended to December 31, 2017. The derivative liability value was determined to be $1,022,400 and the offset was booked to other income as a Loss on Extinguishment of Debt, adjustment amount of $962,300.

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Pursuant to the Second Amended Note & Warrant Agreement, on December 23 and December 28, 2015, the Company issued to the two purchasers of December 2015 Notes in the aggregate principal amount of $1,000,000 of secured convertible promissory notes. Between February 23, 2016 and March 31, 2016, the Company issues three additional Notes to three purchasers in the aggregate principal amount of $360,000 of secured convertible promissory notes.

 

Consequently, on March 31, 2016, notes in the aggregate principal amount of $4.36 million were revalued, and the derivative liability value was determined to be $1,441,700; the offset was booked to other income as a Gain on Derivative Liability of $786,900.

 

The range of Black-Scholes option-pricing model assumption inputs for all the valuation dates are in the table below:

 

   September 30, 2015 
through to
 March 31, 2016
Low
   September 30, 2015 
through to
 March 31, 2016
High
 
Annual dividend yield        
Expected life (years)   0.2    2.00 
Risk-free interest rate   0.08%   1.06%
Expected volatility   47.83%   225.32%

 

The following tables include a roll-forward of liabilities classified within Levels 1, 2 and 3: 

 

   Six Months Ended March 31, 2016 
   Level 1   Level 2   Level 3 
                
Stock warrant and other derivative liabilities at September 30, 2015  $-   $-   $833,000 
$3M of convertible debt prior to amendment   -    -    (772,800)
$3M of convertible debt as amended   -    -    962,300 
Issuance of warrants and other derivatives   -    -    444,600 
Change in fair value   -    -    (25,400)
Stock warrant and other derivative liabilities at March 31, 2016  $-   $-   $1,441,700 

 

   Six Months Ended March 31, 2015 
   Level 1   Level 2   Level 3 
                
Stock warrant and other derivative liabilities at September 30, 2014  $-   $-   $153,100 
Change in fair value   -    -    (67,300)
Stock warrant and other derivative liabilities at March 31, 2015  $-   $-   $85,800 

 

The net changes in Derivative Liabilities for transactions which were booked to other income resulted in a net gain on derivative liabilities of $798,200 and $67,300 for the six months ended March 31, 2016 and 2015 respectively.
 

The net changes in Extinguishment of Debt for transactions which were booked to other income resulted in a net loss on extinguishment of debt of $2,337,400 for the six months ended March 31, 2016. For the same period in 2015 we had no similar expenses.

 

As of March 31, 2016 and September 30, 2015 we had derivative liabilities of $1,441,700 and $833,000 respectively.

 

5.STOCKHOLDERS’ DEFICIT

 

Common and Preferred Stock

  

At the Company’s annual stockholders meeting held on October 28, 2015, stockholders approved to amend the Company’s Articles of Incorporation to increase the number of shares of Common Stock authorized for issuance from 180,000,000 to 500,000,000 shares.

 

As of March 31, 2016, the Company is authorized to issue 515,000,000 shares of stock, of which 500,000,000 are Common Stock; the remaining 15,000,000 shares, with a par value of $0.001 per shares are blank-check preferred stock which the Board is expressly authorized to issue without stockholder approval, for one or more series of preferred stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers, if any, of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of preferred stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.

 

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As of March 31, 2016, 102,717,409 shares of Common Stock were issued and outstanding. No shares of preferred stock were issued or outstanding.

 

On August 20, 2015, the Board approved an award of 750,000 shares of the Company's restricted Common Stock to Dr. Smith in connection with her appointment as Chairman of the Company's Board. These shares, which are fully vested, were valued at $0.055 per share, the closing price of the shares on the day of grant, and were valued in aggregate at $41,250. The issuance of the shares was processed on October 30, 2015.

 

On January 15, 2016, the company engaged Dian Griesel International (DGI) for a 12 month long consulting agreement to provide public and investor relations services. The fee for the services is $5,000 per month, plus out-of-pocket expenses. As an origination fee for the agreement, the Board approved the issuance of 300,000 shares of common stock to Ms. Griesel on January 15, 2016. The aggregate value of these shares on the date of grant was $6,900.

 

Stock-Option Plans

 

On August 3, 2006, CNS California adopted the CNS California 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan provides for the issuance of awards in the form of restricted shares, stock options (which may constitute incentive stock options (ISO) or non-statutory stock options (NSO), stock appreciation rights and stock unit grants to eligible employees, directors and consultants and is administered by the Board. A total of 667,667 shares of stock were ultimately reserved for issuance under the 2006 Plan. As of March 31, 2016, 70,825 options were exercised and there were 501,924 options and 6,132 restricted shares outstanding under the amended 2006 Plan with a residual 87,786 shares which will not be issued as the 2006 Plan has been frozen. The outstanding options have exercise prices to purchase shares of Common Stock ranging from $3.60 to $32.70.

 

On March 22, 2012, our Board approved the MYnd Analytics, Inc. 2012 Omnibus Incentive Compensation Plan (the “2012 Plan”), reserved 333,334 shares of stock for issuance and on December 10, 2012, the Board approved the amendment of the 2012 Plan to increase the shares authorized for issuance from 333,334 shares to 5,500,000 shares. On March 26, 2013, the Board further approved the amendment of the 2012 Plan to increase the shares authorized for issuance from 5,500,000 shares to 15,000,000 shares. The 2012 Plan, as amended, was approved by our stockholders at the 2013 annual meeting held on May 23, 2013.

 

On January 8, 2015, the Board granted an option to purchase 250,000 shares of its Common Stock pursuant to the 2012 Plan, at an exercise price of $0.25 per share to a consultant. The option vesting is contingent upon the achievement of agreed upon goals.

 

On August 20, 2015, the Board approved an award of options to purchase 250,000 shares of the Company’s common stock for each of the Company's directors, for an aggregate grant of 1,750,000 options. The options are exercisable at a price per share of $0.055, the closing price of the Company's common stock on the date of grant, and will vest pro-rata over 36 months.

 

 As of March 31, 2016, under the 2012 Plan as amended, options to purchase 13,728,087 shares of Common Stock and 750,000 restricted shares remain outstanding. No options have been exercised under the 2012 Plan and 521,913 shares remain available for issuance.

 

Stock-based compensation expenses are generally recognized over the employees’ or service provider’s requisite service period, generally the vesting period of the award. Stock-based compensation expense included in the accompanying statements of operations for the three and six months ended March 31, 2016 and 2015 is as follows:   

 

   For the three months ended
March 31,
 
   2016   2015 
Research   10,400    10,400 
Product Development   7,700    15,500 
Sales and marketing   14,900    53,400 
General and administrative   7,200    20,500 
Total  $40,200   $99,800 

 

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   For the six months ended
March 31,
 
   2016   2015 
Research   20,800    20,800 
Product Development   16,800    34,000 
Sales and marketing   14,900    63,300 
General and administrative   18,400    44,100 
Total  $70,900   $162,200 

 

Total unrecognized stock-based compensation as of March 31, 2016, amounted to $145,443.

 

A summary of stock option activity is as follows: 

 

   Number of 
Shares
   Weighted
Average 
Exercise 
Price
 
Outstanding at September 30, 2015   14,230,011   $0.75 
Granted   -      
Exercised   -    - 
Forfeited   -      
Outstanding at March 31, 2016   14,230,011   $0.75 

 

Following is a summary of the status of options outstanding at March 31, 2016:

 

Exercise
Price ($)
   Number
of Shares
   Expiration
Date
   Weighted Average
Exercise Price ($)
 
$0.055    1,750,000    08/2025  $0.055 
 0.04718    8,795,308    12/2022 – 01/2023    0.04718 
 0.25    2,715,109    03/2023 – 01/2025    0.25 
 0.26    425,000    07/2024   0.26 
 3.00    42,670    03/2022   3.00 
 3.60    28,648    08/2016   3.60 
 3.96    32,928    08/2016   3.96 
 9.00    4,525    11/2016   9.00 
 12.00    28,535    03/2019 – 07/2020    12.00 
 14.10    10,000    03/2021   14.10 
 15.30    1,373    09/2018   15.30 
 16.50    262,441    03/2020   16.50 
 17.70    953    08/2016   17.70 
 24.00    4,667    12/2017   24.00 
 26.70    32,297    09/2017   26.70 
 28.80    11,767    04/2018   28.80 
 32.70    83,790    08/2017   32.70 
$Total    14,230,011    Average   $0.75 

 

Warrants to Purchase Common Stock

 

 The warrant activity for the period starting October 1, 2015, through March 31, 2016, is described as follows:

 

   Number of 
Shares
   Weighted
Average 
Exercise Price
 
Outstanding at September 30, 2015   781,524   $0.53 
Granted   87,200,000    0.05 
Exercised   -    - 
Expired   (35,002)   1.00 
Outstanding at March 31, 2016   87,946,522   $0.05 

 

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Following is a summary of the status of warrants outstanding at March 31, 2016:

 

Exercise
Price
   Number
of Shares
   Expiration
Date
  Weighted Average
Exercise Price
 
$0.04718    38,152   03/2018  $0.04718 
 0.05    27,200,000(1)  12/31/2020   0.05 
 0.05    60,000,000(2)  12/31/2020   0.05 
 0.25    332,200   04/2016 – 07/2017   0.25 
 0.275    324,000   06/2018 – 03/2019   0.275 
 1.00    32,168   10/2015 – 01/2017   1.00 
 7.50    3,334   05/2016   7.50 
$9.00    16,668   07/2017   9.00 
 Total    87,946,522      $0.05 

 

(1) Between December 23, 2015, and March 31, 2016 the Company entered into a Second Amended Note and Warrant Purchase Agreement pursuant to which the Company issued five Notes (including the December 2015 Notes) to the four purchasers for an aggregate principal amount of $1,360,000 and issued five Note Warrants to purchase an aggregate of 27,200,000 shares of the Company's Common Stock. The Note Warrants were issued to purchasers of Notes in an amount equal to 100% of the shares underlying their December 2015 Notes. Each Note Warrant is exercisable, in whole or in part, during the period beginning on the date of its issuance, and ending on the earlier of (i) December 31, 2020 and (ii) the date that is forty-five (45) days following the date on which the daily closing price of shares of the Company's Common Stock quoted on the OTCQB Venture Marketplace (or other bulletin board or exchange on which the Company's Common Stock is traded or listed) exceeds $0.25 for at least ten (10) consecutive trading days. In connection therewith, the Company will promptly notify the Note Warrant holders in the event that the daily closing price of the Company's shares of Common Stock so exceeds $0.25 for at least ten (10) consecutive trading days. 2 million Note Warrants were issued to one accredited investor and 25.2 million Note Warrants were issued to Directors; for further detail refer to Note 6. Related Party Transactions.

 

(2) On December 23, 2015, in consideration for the agreement to extend the maturity date of the Notes, the Company issued to holders of all Notes outstanding prior to the date of the Second Amended Note & Warrant Agreement, Extension Warrants to purchase an aggregate of 60,000,000 shares of Common Stock. Each such holder was issued an Extension Warrant to purchase Common Stock in an amount equal to 100% of the shares underlying each such holder's previously outstanding Notes. 11 million Extension Warrants were issued to 10 accredited investors and 49 million Extension Warrants were issued to Directors and Affiliates; for further detail refer to Note 6. Related Party Transactions.

 

On December 23, 2015, we valued the Extension Warrants to purchase 60 million shares of Common Stock using the Black-Scholes model and determined their value to be $1,196,000, which was booked as an Extinguishment of Debt expense.

 

 The range of Black-Scholes option-pricing model assumption inputs for the six months ended March 31, 2016, were as follows: 

 

  

December 23, 2015

through

March 31,2016

 
Annual dividend yield   - 
Expected life (years)   5.00 
Risk-free interest rate   1.21% ~ 1.74%
Expected volatility   255.50% ~ 272.56%

 

At March 31, 2016, there were warrants outstanding to purchase 87,946,522 shares of the Company’s Common Stock. The exercise prices of the outstanding warrants range from $0.04718 to $9.00 with a weighted average exercise price of $0.05. The warrants expire at various times starting 2016 through 2020.

 

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6.RELATED PARTY TRANSACTIONS

 

Termination of Governance Agreements

 

On March 28, 2015, the Company entered into a separate termination agreement with each of Equity Dynamics and SAIL, in each case to immediately terminate the respective November 28, 2012 governance agreement (collectively, the “Governance Agreements”) that the Company had entered into with each of Equity Dynamics and SAIL (collectively, the “Termination Agreements”). Equity Dynamics is an entity owned by John Pappajohn, a director of the Company, and SAIL is one of the Company’s principal stockholders of which former director, Walter Schindler, was the managing partner. Pursuant to the Governance Agreements, the Company had agreed, subject to providing required notice to stockholders, to appoint four individuals nominated by Equity Dynamics and three individuals nominated by SAIL to the Company’s Board, and to create vacancies for that purpose, if necessary. In addition, at each meeting of stockholders of the Company at which directors were nominated and elected, the Company had agreed to nominate for election the four designees of Equity Dynamics and the three designees of SAIL, and further had agreed to take all necessary action to support such election, and to oppose any challenges to such designees. The Governance Agreements also restricted the Company’s ability to increase the number of directors to more than seven without the consent of Equity Dynamics and SAIL. Pursuant to the Termination Agreements, the Governance Agreements were terminated in their entirety as of March 28, 2015, and are of no further force or effect.

  

Note Purchase Agreement, Notes and Omnibus Amendment and Second Amendment Note & Warrant Agreement

 

Between September 22, 2014, and July 20, 2015, the Company entered into a the Original Note Purchase Agreement in connection with a bridge financing, with nine accredited investors, including lead investor RSJ PE. Pursuant to the Original Note Purchase Agreement, the Company issued fifteen September 2014 Note in the aggregate principal amount of $2.27 million. Of this amount, RSJ PE purchased a September 2014 Note for $750,000. The September 2014 Notes were also purchased by the following affiliates of the Company or entities under their control: RSJ PE, of which Michal Votruba is a director, which purchased a September 2014 Note for $750,000; the Company’s director, John Pappajohn, purchased three September 2014 Notes for $400,000; the Follman Family Trust of which Robert Follman, a director of the Company, is a trustee, purchased a September 2014 Note for $100,000; The Tierney Family Trust, which is a greater than 5% stockholder of the Company, purchased four September 2014 Notes for $540,000, of which Thomas Tierney, a former director and Chairman of the Board, is a trustee; and Oman Ventures, of which Mark Oman, a greater than 5% stockholder of the Company, is the President, purchased a September 2014 Note for $200,000.  Michal Votruba joined our Board on July 30, 2015.

 

For details of the Original Note Purchase Agreement, Amendment No.1 on April 14, 2015, the Omnibus Amendment on September 14, 2015 and subsequent Second Amended Note & Warrant Agreement on December 23, 2015 please refer to Note 3. Convertible Debt and Equity Financing.

 

On September 14, 2015, the Company entered into an Omnibus Amendment and subsequently thereto, on September 14, 15 and 24, 2015, the Company entered into a Note Purchase Agreement, as amended by the Omnibus Amendment, with each of six accredited investors, in connection with a bridge financing. Pursuant to these Note Purchase Agreements, the Company issued an aggregate principal amount of $710,000 of secured convertible September 2015 Notes, which amount also represents the gross proceeds to the Company from the September 2015 Notes. Four of the six September 2015 Notes were purchased by affiliates of the Company, or an entity under such affiliate’s control, as follows: (i) Dr. Robin Smith, Chairman of the Board, purchased a Note for $60,000; (ii) the Follman Family Trust, of which, Robert Follman, a director of the Company, is a trustee, purchased a Note for $150,000; (iii) John Pappajohn, a director of the Company, purchased a Note for $100,000 and (iv) RSJ PE, purchased a Note for $350,000.

 

On December 23, 2015, the Company entered into a Second Amended Note & Warrant Agreement pursuant to which, on December 23 and December 28, 2015, the Company issued to the two purchasers thereof, who are both affiliates of the Company, (i) an aggregate principal amount of $1,000,000 of December 2015 Notes, which amount also represents the gross proceeds to the Company from the December 2015 Notes, and (ii) a Note Warrant issued to each holder of December 2015 Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their December 2015 Note and is exercisable at $0.05 per share. The affiliates who purchased the December 2015 Notes were as follows: (i) John Pappajohn, a director of the Company, purchased a Note for $250,000 and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock and (ii) RSJ PE, who purchased a Note for $750,000 and was issued a Note Warrant to purchase 15,000,000 shares of Common Stock.

 

During the three months ended March, 31, 2016, pursuant to the Second Amended Note & Warrant Agreement the Company issued to the three accredited investor purchasers thereof (i) an aggregate principal amount of $360,000 in Notes and (ii) and a Note Warrant to each holder of such Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their respective Note. A total of 7,200,000 shares of Common Stock in the aggregate underlie these Note. Two of the purchasers were affiliates of the Company as follows: (i) Geoffrey E. Harris, a member of the Board, purchased a Note on February 23, 2016, for $10,000 and was issued a Note Warrant to purchase 200,000 shares of Common Stock and; (ii) John Pappajohn, a member of the Board, purchased a 2015 Note on March 31, 2016, for $250,000, and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock.

 

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Each Note Warrant is exercisable, in whole or in part, during the period beginning on the date of its issuance, and ending on the earlier of (i) December 31, 2020 and (ii) the date that is forty-five (45) days following the date on which the daily closing price of shares of the Company's Common Stock quoted on the OTCQB Venture Marketplace (or other bulletin board or exchange on which the Company's Common Stock is traded or listed) exceeds $0.25 for at least ten (10) consecutive trading days. In connection therewith, the Company will promptly notify the Note Warrant holders in the event that the daily closing price of the Company's shares of Common Stock so exceeds $0.25 for at least ten (10) consecutive trading days.

Also on December 23, 2015, in consideration for the agreement to extend the maturity date of the Notes, the Company issued to holders of all Notes outstanding prior to the date of the Second Amended Note & Warrant Agreement, Extension Warrants to purchase an aggregate of 60,000,000 shares of Common Stock. Each such holder was issued an Extension Warrant to purchase Common Stock in an amount equal to 100% of the shares underlying each such holder's previously outstanding Notes. Extension warrants were issued to affiliates as follows:

 

 5-Year Extension Warrants with an non-cashless exercise price of
$0.05
  Secured Convertible
Promissory Notes
   Warrants to purchase
Shares of Common
Stock
 
         
RSJ Private Equity  $ 1,850,000   22,000,000 
Robin L. Smith   60,000    1,200,000 
John Pappajohn   550,000    6,000,000 
Tierney Family Trust   540,000    10,800,000 
Oman Ventures   200,000    4,000,000 
Follman Family Trust   250,000    5,000,000 
Total Secured Convertible Promissory Notes  $3,450,000    49,000,000 

 

Director and Officer Indemnification Agreement

 

On December 7, 2015, the Company entered into indemnification agreements with each of its Directors and Executive Officers. The agreements provide for, among other things: the indemnification of these Directors and Officers by the Company to the fullest extent permitted by the laws of the State of Delaware; the advancement to such persons by the Company of certain expenses; related procedures and presumptions of entitlement; and other related matters.

 

Transactions with John Pappajohn, Director

 

On September 22, 2014, March 18, 2015, June 2, 2015 and September 15, 2015, Mr. Pappajohn purchased four Notes for $200,000, $100,000, $100,000 and $100,000 respectively. Pursuant to the Omnibus Amendment, the Notes are convertible into shares of Common Stock at $0.055 per share: (i) automatically upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily within 15 days prior to maturity. 

 

On September 6, 2015, Mr. Pappajohn irrevocably assigned $200,000 in principal of his September 2014 Notes to four outside parties in the amount of $50,000 each.

 

On September 15, 2015, Mr. Pappajohn purchased a September 2015 Note for $100,000. The September 2015 Notes are convertible into share of Common Stock (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price, such that the conversion price of all notes will be $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock).

 

On December 23, 2015, and on March 31, 2016, Mr. Pappajohn purchased two Notes (including December 2015 Notes) for $250,000 each pursuant to the abovementioned Second Amended Note & Warrant Purchase Agreement. Additionally, in connection with the Second Amended Note & Warrant Purchase Agreement, Mr. Pappajohn was issued Warrants to purchase an aggregate of 16,000,000 shares of Common Stock at $0.05 per share, consisting of two Note Warrants to purchase in aggregate a total of 10,000,000 shares of Common Stock, and an Extension Warrant to purchase 6,000,000 shares of Common Stock.

 

Transactions with Robert J. Follman, Director

 

On October 19, 2012, an October 2012 Note in the aggregate principal amount of $200,000 was issued in exchange for cash to the Trust of Robert J. Follman and Carole A. Follman, dated August 14, 1979 (the “Follman Trust”), an accredited investor, of which Robert J. Follman is a trustee. As of February 25, 2013, Mr. Follman was elected as a Director of the Company. On June 14, 2013, the Follman Trust converted their October 2012 Note and interest thereon into 4,491,310 shares of Common Stock at a conversion price $0.04718 per share.

 

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The Follman Trust made multiple additional investments pursuant to a series of subscription agreements all of which were the result of private placements of unregistered stock at $0.25 per share. All individual transactions were in tranches of $100,000 for the purchase of 400,000 shares and the Company received gross cash proceeds of $100,000 on each occasion. These transactions occurred on the following dates: August 16 and September 11 of 2013 and January 17, February 14 and July 8 of 2014. In aggregate the Follman Trust has purchased 2,000,000 shares at $0.25 per share for $500,000 gross cash proceeds to the Company.

  

On March 17, 2015 and September 15, 2015, the Follman Trust purchased Notes for $100,000 and $150,000, respectively. Pursuant to the Omnibus Amendment, these Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily, within 15 days prior to maturity.

 

Additionally, on December 23, 2015, in connection with the Second Amended Note & Warrant Purchase Agreement, the Follman Trust was issued an Extension Warrant to purchase 5,000,000 shares of Common Stock at $0.05 per share.

 

Transaction with Robin L. Smith, Chairman

 

On September 14, 2015, Dr. Smith, our Chairman of the Board, purchased a Note for $60,000. Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

 

Additionally, on December 23, 2015, in connection with the Second Amended Note & Warrant Purchase Agreement, Dr. Smith was issued an Extension Warrant to purchase 1,200,000 shares of Common Stock at $0.05 per share.

 

Transaction with Geoffrey E. Harris, Director and Chairman, Audit Committee

 

On February 23, 2016, Geoffrey E. Harris, purchased a Note for $10,000 pursuant to the Second Amended Note & Warrant Purchase Agreement and was issued a Note Warrant to purchase an aggregate of 200,000 shares of Common Stock at $0.05 per share.

Transactions with George Carpenter, President and Chief Executive Officer

 

On September 25, 2013, the Board approved a consulting agreement effective May 1, 2013, for marketing services provided by Decision Calculus Associates, an entity operated by Mr. Carpenter’s spouse, Jill Carpenter. For the period from May 1, 2013 through to March 25, 2015, we had paid $280,000 to Decision Calculus Associates (“DCA”). For the period from March through July of 2015, DCA was not engaged by the Company. Effective August 2015 DCA has been re-engaged at a fee of $10,000 per month. From August 2015 through March 31, 2016, DCA has been paid $70,000 with a further $10,000 balance due in accounts payable.

   

Transactions with the SAIL Capital Partners and SAIL Holdings

 

Mr. Schindler served as a Director between November 29, 2012 and June 11, 2015, and was the Managing Partner of SAIL Capital Partners, which was a greater than 5% stockholder of the Company, and is the general partner of all the SAIL entities except for SAIL Holding, LLC which is controlled directly by Mr. Schindler.

 

On January 5, 2015, the Company entered into a three-month long consulting engagement with Dr. Eric Warner, Managing Partner, Europe, Middle East & Africa, SAIL Capital Partners Ltd. The objectives of the engagement include the establishment of a revenue-generating licensing agreement in the United Kingdom (U.K.) and initiation a pilot study of our PEER Online technology. Dr. Warner has been paid $10,000 per month for a total of $30,000. On January 8, 2015, the Board granted Dr. Warner an option to purchase 250,000 shares of Common Stock with an exercise price of $0.25 per share; the option vesting is conditioned on the execution of a licensing agreement and a PEER Online pilot study. The fair value of the option, which was determined using the Black-Scholes model, was $28,300 and was expensed over the term of the engagement.

 

Transactions with Tierney Family Trust, Greater than 5% Stockholder

 

Mr. Tierney, who resigned from the Board on May 22, 2015, had served on the Board since February 2013, and had served as Chairman of the Board since March 2013. Mr. Tierney is a trustee of the Thomas T. and Elizabeth C. Tierney Family Trust (the “Tierney Family Trust”), which is a greater than 5% stockholder.

  

On September 22, 2014, January 8, 2015, March 17, 2015, June 3, 2015 and July 3, 2015 the Tierney Family Trust purchased five Notes for $200,000, $100,000, $115,000, $100,000 and $25,000, respectively, for an aggregate total of $540,000. Pursuant to the Omnibus Amendment, all such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

 

  Additionally, on December 23, 2015, in connection with the Second Amended and Restated Note & Warrant Purchase Agreement, the Tierney Family Trust was issued an Extension Warrant to purchase 10,800,000 shares of Common Stock at $0.05 per share.

 

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Transactions with Mark and Jill Oman, Greater than 5% Stockholder

 

On September 22, 2014, Oman Ventures LLC, of which Mr. Oman, a greater than 5% stockholder is the President, purchased a Note for $200,000. Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

 

Additionally, on December 23, 2015, in connection with the Second Amended and Restated Note & Warrant Purchase Agreement, Oman Ventures LLC was issued an Extension Warrant to purchase 4,000,000 shares of Common Stock at $0.05 per share.

 

Transactions with RSJ PE

 

Michal Votruba joined our Board on July 30, 2015. Mr. Votruba is a director of RSJ PE, which acted as the lead investor in the private placement financing of September 2014 Notes.

 

On September 26, 2014, and September 24, 2015, investor RSJ PE purchased a two Notes for $750,000 and $350,000 respectively. Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

 

On December 28, 2015, RSJ PE purchased a December 2015 Note for $750,000 pursuant to the abovementioned Second Amended Note & Warrant Purchase Agreement. Additionally, in connection with the Second Amended Note & Warrant Purchase Agreement, RSJ PE was issued Warrants to purchase an aggregate of 37,000,000 shares of Common Stock at $0.05 per share, consisting of a Note Warrant to purchase 15,000,000 shares of Common Stock and an Extension Warrant to purchase 22,000,000 shares of Common Stock.

 

7.LOSS PER SHARE

 

In accordance with ASC 260-10 (formerly SFAS 128, “Computation of Earnings Per Share”), basic net income (loss) per share is computed by dividing the net income (loss) to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period.  For the three and six months ended March 31, 2016 and 2015, the Company has excluded all common equivalent shares from the calculation of diluted net loss per share as such securities are anti-dilutive.

 

A summary of the net income (loss) and shares used to compute net income (loss) per share for the three months ended March 31, 2016 and 2015 is as follows: 

 

   Three months ended
March 31,
 
   2016   2015 
Net Loss for computation of basic and diluted net loss per share:        
Net loss  $(142,700)  $(696,300)
Basic and Diluted net loss per share:          
Basic net loss per share  $(0.00)  $(0.01)
           
Basic and Diluted weighted average shares outstanding   102,669,022    101,667,409 
           
The weighted average of anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:          
Convertible debt   83,271,628    1,892,742 
Warrants   80,938,825    781,833 
Options   14,230,011    12,645,994 

 

   Six months ended
March 31,
 
   2016   2015 
Net Loss for computation of basic and diluted net loss per share:        
Net loss  $(3,594,000)  $(1,570,900)
Basic and Diluted net loss per share:          
Basic net loss per share  $(0.04)  $(0.02)
           
Basic and Diluted weighted average shares outstanding   102,543,215    101,667,409 
           
The weighted average of anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:          
Convertible debt   73,234,048    1,771,371 
Warrants   43,892,108    871,027 
Options   14,230,011    12,531,746 

 

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8.COMMITMENTS AND CONTINGENT LIABILITIES

 

Litigation

 

From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the ordinary course of business. Other than as set forth below, the Company is not currently party to any legal proceedings, the adverse outcome of which, in the Company’s management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company’s results of operations or financial position.

 

Since June 2009, the Company has been involved in litigation against Leonard J. Brandt, a stockholder, former Director and the Company’s former Chief Executive Officer (“Brandt”) in the Delaware Chancery Court, the Supreme Court of the State of Delaware, the United States District Court for the Central District of California and the Superior Court for the State of California, Orange County. Other than current actions described below, the Company has prevailed in all actions or the matters have been dismissed.

 

On April 11, 2011, Brandt and his family business partnership Brandt Ventures, GP, filed an action in the Superior Court for the State of California, Orange County against the Company, one of its stockholders, SAIL Venture Partner, LP, and Mr. David Jones, a former member of the Board, alleging breach of a promissory note agreement entered into by Brandt Ventures, GP and the Company and alleging that Mr. Brandt was wrongfully terminated as Chief Executive Officer in April, 2009.  The Company was served with a summons and complaint in the action on July 19, 2011.

 

On November 1, 2011, Mr. Brandt and Brandt Ventures filed an amended complaint amending their claims and adding new claims against the same parties. On March 12, 2012, the court sustained demurrers to certain of the counts against each defendant. On March 22, 2012, the plaintiffs filed a second amended complaint modifying certain of their claims, but did not add new claims. On February 6, 2013, the plaintiffs moved for leave to amend the second amended complaint and file a third amended complaint. On March 6, 2013, the Court granted leave to amend, but awarded fees and costs for the defendants to again make dispositive motions. The third amended complaint adds a claim for breach of the promissory note and seeks to foreclose on the collateral securing the note obligation.  In addition, Mr. Brandt is seeking approximately $170,000 of severance and compensatory and punitive damages in connection with his termination.  In interrogatory responses served on January 26, 2013, Mr. Brandt for the first time identified that he seeks damages in connection with his termination exceeding $9,000,000.  Mr. Brandt has proffered no credible evidence to support damages in this amount, and the Company believes this claim for damages is without merit.  The plaintiffs also seek rescission of a $250,000 loan made by Brandt Ventures, GP to the Company which was converted into Common Stock in accordance with its terms and restitution of the loan amount.

 

A trial date had originally been set for May 2014. However, plaintiffs’ counsel requested a continuance until August 2014, to which the Company agreed.  On June 18, 2014, at plaintiffs’ counsel’s request, the Company entered into a Standstill and Tolling Agreement, whereby the parties agreed to seek a stay of the litigation and plaintiffs agreed to provide the Company with an executed dismissal of all the claims without prejudice, with the ability to re-file the third amended complaint, without change, on or before June 18, 2015.  The Company had the right to file the executed stipulation of dismissal if the Court lifted the stay.  On May 7, 2015, the parties agreed to continue the Standstill and Tolling Agreement until May 6, 2016, on the same terms. On May 12, 2015, the Court agreed to stay the case for another six months.  On November 4, 2015 the Court lifted the stay, and set the case for trial on March 7, 2016.  On February 3, 2016, the Company filed the executed stipulation of dismissal, thereby ending the current action in Orange County. The parties have recently entered into extensions of the Standstill and Tolling Agreement that permit Mr. Brandt to start a new action and re-file the third amended complaint, without change, on or before May 23, 2016.  The Company continues to believe that Mr. Brandt's allegations set forth in the third amended complaint, like the prior complaints, are without merit. The Company has not accrued any amounts related to this matter. The just-dismissed action was captioned Leonard J. Brandt and Brandt Ventures, GP v. CNS Response, Inc., Sail Venture Partners and David Jones, case no. 30-2011-00465655-CU-WT-CJC.

  

 The Company has expended substantial resources to pursue the defense of legal proceedings initiated by Mr. Brandt.  The Company does not know whether Mr. Brandt will institute additional claims against the Company and the defense of any such claims could involve the expenditure of additional resources by the Company.

 

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Lease Commitments

 

The Company had its Headquarters and Neurometric Services business premises located at 85 Enterprise, Aliso Viejo, California 92656 from February 2010 through January 2016.  The Company relocated its new Headquarters and Neurometric Services business to 26522 La Alameda, Suite 290, Mission Viejo, CA 92691, which is 2,290 sqft in size. We signed a 24 month lease for our new location on January 22, 2016. The lease period commenced on February 1, 2016 and terminates on January 31, 2018. The rent for the first four months is $2,290 per month, which is abated by 50%; for months 5 through 12 the rent increases to $4,580 per month and for the final 12 months the rent will increase by 5% to $4,809 per month.

 

On February 2, 2016, we signed a 23.5 month lease for 1,092 sqft of office space to house our EEG testing center. The premises are located at 25201 Paseo De Alicia, Laguna Hills, CA 92653. The lease period commenced on February 15, 2016 and terminates on January 31, 2018. The rent for first half month of February was prorated at $928.20; for the next 11 months the rent is $1,856 per month, and for the remaining twelve months the rent will increase by 3% to $1,911 per month. The landlord abated the rent for March 2016.

 

The Company incurred rent expense from operations of $16,200 and $12,200 for the three months ended March 31, 2016 and 2015, respectively; and $28,400 and $24,400 for the six months ended March 31, 2016 and 2015, respectively.

 

On April 24, 2013, we entered into a financial lease to acquire additional EEG equipment costing $8,900.  The term of the lease is 36 months ending May 2016 with a monthly payment of $325. As of March 31, 2016 the remaining lease obligation is $600 all of which is due in fiscal year 2016.

 

On January 20, 2016, we entered into a financial lease to acquire Canon Copier costing $6,700.  The term of the lease is 60 months ending January 2021 with a monthly payment of $135. As of March 31, 2016 the remaining lease obligation is $7,800, of the remaining lease obligation is 2016 $1,600; with $1,200 for the years 2017-2020; 2021 $1,400.

 

   Payments due by period 
Contractual Obligations  Total  

Less than 

1 year

   1 to 3 years   3 to 5 years  

More than

5 years

 
                     
Operating Lease Obligations  $140,400   $75,100   $65,300   $-   $- 
Capital Lease Obligations   8,400    2,200    4,800    1,400    - 
Total  $148,800   $77,300   $70,100   $1,400   $- 

 

9.SUBSEQUENT EVENTS

 

Events subsequent to March 31, 2016 have been evaluated through the date these financial statements were issued, to determine whether they should be disclosed to keep the financial statements from being misleading. The following events have occurred since March 31, 2016.

  

On April 5, 2016, the Board approved grants of the Company's Common Stock under the 2012 Plan, with immediate vesting, as follows: 1,000,000 shares to our Chairman of the Board, Dr. Robin Smith; 500,000 shares to our Director and Chairman of the Audit Committee, Geoffrey Harris; and 250,000 shares to each of our remaining five Directors.

 

Also on April 5, 2016, the Board granted 1,000,000 shares of the Company’s Common Stock under the 2012 Plan to each of George Carpenter, the Company's President and Chief Executive Officer, and Paul Buck, the Company's Chief Financial Officer. 50% of these shares vested on the date of grant with the remaining 50% vesting pro-rata over 12 months starting on the date of grant, respectively.

Lastly, on April 5, 2016 the Board granted options to purchase 1,450,000 shares of the Company’s Common Stock under the 2012 Plan to staff members and options to purchase 200,000 shares of the Company’s Common Stock to our consultant, DCA. These shares vest pro-rata over 12 months starting on the date of grant.

 

The abovementioned grants of shares and options to Board members, executive officers, staff and consultant are valued $0.0255 per share, which was the closing price on the OTC.QB of the Company’s Common Stock on April 5, 2016.

 

Subsequent to March 31, 2016, the Company issued multiple Notes and Note Warrants pursuant to the Second Amended Note and Warrant Purchase Agreement to affiliates of the Company as follows:

 

·On April 7, 2016, the Company issued to the Follman Trust, of which Robert Follman, a member of the Company’s Board, is a trustee: (i) a Note in the aggregate principal amount of $200,000, and (ii) a Note Warrant to purchase 4,000,000 shares of the Company’s Common stock at $0.05 per share.

 

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·On April 11, 2016, the Company issued to John Pappajohn, a member of the Board: (i) a Note in the aggregate principal amount of $250,000, and (ii) a Note Warrant to purchase 5,000,000 shares of the Company’s Common stock at $0.05 per share.
·On April 21, 2016, the Company issued to Dr. Robin Smith, our Chairman of the Board: (i) a Note in the aggregate principal amount of $40,000, and (ii) a Note Warrant to purchase 800,000 shares of the Company’s Common stock at $0.05 per share.
·On May 4, 2016, the Company issued to George Carpenter, the Company’s CEO, and his wife Jill: (i) a Note in the aggregate principal amount of $50,000, and (ii) a Note Warrant to purchase 1,000,000 shares of the Company’s Common stock at $0.05 per share.

 

In aggregate, since March 31, 2016, the Company has issued Notes totaling $540,000, which also represents gross proceeds to the Company, and has issued Note Warrants to purchase 10,800,000 shares of the Company’s Common Stock at $0.05 per share.

  

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operation should be read in conjunction with our unaudited condensed consolidated financial statements as of, and for, the three and six months ended March 31, 2016 and 2015, and our Annual Report on Form 10-K for the year ended September 30, 2015, filed with the U.S. Securities and Exchange Commission on January 5, 2016.

 

Forward-Looking Statements

 

This discussion summarizes the significant factors affecting the unaudited condensed consolidated operating results, financial condition and liquidity and cash flows of MYnd Analytics, Inc. (“we,” “us,” “our,” or the “Company”) for the three and six months ended March 31, 2016 and 2015. Except for historical information, the matters discussed in this management’s discussion and analysis or plan of operation and elsewhere in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new products or services; our statements concerning litigation or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects; our financing plans or growth strategies; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

 

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to:

 

·our inability to raise additional funds to support operations and capital expenditures;
·our inability to achieve greater and broader market acceptance of our products and services in existing and new market segments;
·our inability to successfully compete against existing and future competitors;
·our inability to manage and maintain the growth of our business;
·our inability to protect our intellectual property rights; and
·other factors discussed under the headings “Risk Factors” and “Business” in our Annual Report on Form 10-K for the year ended September 30, 2015 and this Quarterly Report on Form 10-Q.

 

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

 

Overview

 

The Company is a predictive analytics company that provides objective clinical decision support to mental healthcare providers for the personalized treatment of behavioral disorders, including depression, anxiety, bipolar disorder, post-traumatic stress disorder (“PTSD”) and other non-psychotic disorders. The Company uses its proprietary neurometric platform, PEER Online, to generate Psychiatric EEG Evaluation Registry (“PEER”) Reports to predict the likelihood of response by an individual to a range of medications prescribed for the treatment of behavioral disorders. Management intends to conduct a series of clinical trials, termed in aggregate the SMART-MD trials. The protocols to be used in this series of trials will be substantially similar to the protocol approved by the Walter Reed Institutional Review Board (the "Walter Reed IRB") during our 2013-2014 clinical trial at Walter Reed National Military Medical Center (“Walter Reed”) and Fort Belvoir Community Hospital (“Fort Belvoir”) (collectively, the “Walter Reed PEER Trial”). This protocol utilizes our neurometric platform to provide PEER Reports to clinicians treating patients with a primary diagnosis of depression with various comorbidities allowed, if present, to include PTSD and mild traumatic brain injury (“mTBI). The first trial in the series is the Canadian Forces Trial, which is expected to commence in the next quarter, which will be followed by parallel trials in Southern California, the SoCal Trial, as well as other U.S. locations. The protocols for the Canadian Forces Trial and the SoCal Trial have been approved by their respective institutional review boards and are ready for initiation and the recruitment of study subjects. The objective of the SMART-MD trials will be to provide additional information to demonstrate the clinical and economic utility of our neurometric platform. We also expect to conduct additional studies with other groups and organizations. We are also focusing our direct-to-consumer marketing efforts using social media within California to boost our commercialization of the PEER Online platform and its PEER Reports.

 

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Working Capital

 

We are unable to pay all our obligations as they become due and we are in arrears on paying certain of our creditors.  If we are not able to raise additional funds within the next several months, and we cannot find additional sources of funds and/or reach accommodations with certain of our creditors, we will likely be required to cease our operations.

 

Since our inception, we have never been profitable and we have generated significant net losses. As of March 31, 2016, we had an accumulated deficit of approximately $66.2 million compared to our accumulated deficit as of March 31, 2015, which was approximately $60.8 million. We incurred operating losses of approximately $1.3 million and $1.6 million for the six months ended March 31, 2016 and 2015, respectively, and incurred net losses of $3.6 million and $1.6 million for those respective periods. Large, non-cash, accounting transactions significantly impacted the net losses for the 2016 and 2015 six-month periods in question, including:

 

·For the six-month period ended March 31, 2016, our net loss was exacerbated by non-cash charges totaling approximately $2.3 million as a result of accounting for the extinguishment of debt, non-cash interest and derivative liability transactions. These non-cash charges are primarily the result of amendments to the terms of our convertible notes payable along with the issuance of warrants pursuant to our fund raising.

·For the six-month period ended March 31, 2015 we had non-cash income of $6,700.

 

Assuming we are able to continue our operations, we expect our net losses to continue for at least the next eighteen months to two years. We anticipate that a substantial portion of any capital resources and efforts would be focused on conducting our proposed clinical trials, followed by the scale-up of our commercial organization, further research, product development and other general corporate purposes, including the payment of legal fees incurred as a result of our litigation. We anticipate that future research and development projects would be funded by grants or third-party sponsorship, along with funding by the Company.

 

As of March 31, 2016, our current liabilities of approximately $1.67 million exceeded our current assets of approximately $0.62 million by approximately $1.05 million.  During fiscal 2016 to date we have raised $1.9 million from the private placement of secured debt convertible at $0.05 per share along with 100% warrant coverage. During fiscal year 2015 we raised $1.35 million through this private placement of debt.

On December 23, 2015, the Company entered into a second amended and restated note and warrant purchase agreement with each of 16 accredited investors, pursuant to which (i) the aggregate principal amount of notes available for issuance was increased from $3.0 million to up to $6.0 million, (ii) the maturity date of currently outstanding notes was extended from March 21, 2016 to December 31, 2017; (iii) the time during which notes may be issued was extended and (iv) certain warrants were issued to holders of both previously issued and newly issued notes.

 

Pursuant to the second amended note and warrant agreement, between December 23, 2015 and the date of this report, the Company has issued to seven purchasers thereof (i) an aggregate principal amount of $1,900,000 in nine secured convertible promissory notes, which amount also represents the gross proceeds to the Company therefrom, and (ii) a warrant to the purchaser of each note, to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying its respective purchased notes. For details of the second amended note and warrant agreement financing see "Private Placement Transactions" below.

 

We will need additional funding to conduct the planned clinical trials and to conduct a marketing campaign to significantly increase the demand for our PEER Online services. We are actively exploring additional sources of capital. However, we cannot offer assurances that additional funding will be available on acceptable terms, or at all. Even if we were to raise additional funds, any additional equity funding may result in significant dilution to existing stockholders, and, if we incur additional debt financing, a substantial additional portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting the funds available for our business activities. If adequate funds are not available, it will likely force us to cease operations or would otherwise have a material adverse effect on our business, financial condition and/or results of operations.

 

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Private Placement Transactions

 

Between September 22, 2014, and July 20, 2015, the Company entered into a Note Purchase Agreement (the “Original Note Purchase Agreement”) in connection with a bridge financing, with nine accredited investors, including lead investor RSJ Private Equity investiční fond s proměnným základním kapitálem (“RSJ PE”). Pursuant to the Original Note Purchase Agreement, the Company issued fifteen secured convertible promissory notes (each, a “September 2014 Note”) in the aggregate principal amount of $2.27 million. The September 2014 Notes were also purchased by the following affiliates of the Company or entities under their control: RSJ PE, of which Michal Votruba is a director, which purchased a September 2014 Note for $750,000; the Company’s director, John Pappajohn, who purchased three September 2014 Notes for $400,000; the Follman Family Trust, which purchased a September 2014 Note for $100,000; The Tierney Family Trust, which is a greater than 5% stockholder of the Company, which purchased five September 2014 Notes for $540,000; and Oman Ventures, of which Mark Oman, a greater than 5% stockholder of the Company, is the President, which purchased a September 2014 Note for $200,000. Michal Votruba joined our Board on July 30, 2015.

 

The Original Note Purchase Agreement provided for the issuance and sale of September 2014 Notes in the aggregate principal amount of up to $2.5 million, in one or more closings to occur over a six-month period beginning September 22, 2014. The Original Note Purchase Agreement also provided that the Company and the holders of the September 2014 Notes enter into a registration rights agreement covering the registration of the resale of the shares of the Common Stock underlying the September 2014 Notes.

 

On April 14, 2015, the Company entered into Amendment No. 1 to the Original Note Purchase Agreement with the majority of the noteholders in principal, dated as of April 14, 2015 (“Amendment No. 1”), pursuant to which: (i) the aggregate principal amount of notes provided for issuance was increased by $0.5 million to a total of $3.0 million, and (ii) the period to raise the $3.0 million was extended to September 30, 2015. The Company subsequently amended and restated the Original Note Purchase Agreement solely to update for the changes made pursuant to Amendment No. 1 (such amended and restated agreement, together with the Original Note Purchase Agreement, the “Note Purchase Agreement”).

 

On September 14, 2015, the Company entered into an Omnibus Amendment (the “Omnibus Amendment”) to the Note Purchase Agreement and the notes purchased and sold pursuant thereto, with the majority of the noteholders to fix the conversion price of all notes at $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock) (the “Fixed Conversion Price”) (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price.

 

Subsequently thereto, on September 14, 15 and 24, 2015, the Company entered into a Note Purchase Agreement, as amended by the Omnibus Amendment, with each of six accredited investors, in connection with a bridge financing. Pursuant to these Note Purchase Agreements, the Company issued an aggregate principal amount of $710,000 of secured convertible promissory notes (collectively, the “September 2015 Notes,” and together with the September 2014 Notes all other notes that may be purchased and sold, from time to time in the future, pursuant to the Note Purchase Agreement, and any further amendments or modifications thereto, the “Notes”), which amount also represents the gross proceeds to the Company from the September 2015 Notes. Four of the six September 2015 Notes were purchased by affiliates of the Company, or an entity under such affiliate’s control, as follows: (i) Dr. Robin Smith, Chairman of the Board of Directors of the Company, purchased a Note for $60,000; (ii) the Follman Family Trust purchased a Note for $150,000; (iii) John Pappajohn purchased a Note for $100,000 and (iv) RSJ PE purchased a Note for $350,000.

 

On December 23, 2015, the Company entered into a Second Amended Note & Warrant Agreement (which further amended the Note Purchase Agreement, as modified by the Omnibus Amendment) (the "Second Amended Note & Warrant Agreement"), with each of 16 accredited investors, pursuant to which (i) the aggregate principal amount of Notes available for issuance was increased from $3.0 million to up to $6.0 million, (ii) the maturity date of currently outstanding Notes was extended from March 21, 2016 to December 31, 2017; (iii) the time during which Notes may be issued was extended and (iv) certain warrants were issued to holders of both previously issued and newly issued Notes.

  

Pursuant to the Second Amended Note & Warrant Agreement, between December 23, 2015 and the date of this report, the Company has issued to the seven purchasers thereof (i) an aggregate principal amount of $1,900,000 in nine Notes, which amount also represents the gross proceeds to the Company from such Notes, and (ii) a Note Warrant to each holder of such Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their respective Note (each, a "Note Warrant"). Each Note Warrant is exercisable, in whole or in part, during the period beginning on the date of its issuance, and ending on the earlier of (i) December 31, 2020 and (ii) the date that is forty-five (45) days following the date on which the daily closing price of shares of the Company's Common Stock quoted on the OTCQB Venture Marketplace (or other bulletin board or exchange on which the Company's Common Stock is traded or listed) exceeds $0.25 for at least ten (10) consecutive trading days. In connection therewith, the Company will promptly notify the Note Warrant holders in the event that the daily closing price of the Company's shares of Common Stock so exceeds $0.25 for at least ten (10) consecutive trading days. Eight of these Notes and Note Warrants were purchased by affiliates of the Company, or an entity under such affiliate’s control, as in the following table:

 

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Date  Noteholder  Affiliation  Note Amount   Common Stock
Warrants Issued
 
12/23/15  John Pappajohn  Director  $250,000    5,000,000 
12/28/15  RSJ Private Equity  Director   750,000    15,000,000 
02/23/16  Geoffrey Harris  Director   10,000    200,000 
03/31/16  John Pappajohn  Director   250,000    5,000,000 
04/07/16  Follman Trust  Director is a trustee   200,000    4,000,000 
04/11/16  John Pappajohn  Director   250,000    5,000,000 
04/21/16  Robin Smith  Chairman   40,000    800,000 
05/04/16  George & Jill Carpenter  Chief Executive Officer   50,000    1,000,000 
   Total     $1,800,000    36,000,000 

 

Also on December 23, 2015, in consideration for the agreement to extend the maturity date of the Notes, the Company issued to holders of all Notes outstanding prior to the date of the Second Amended Note & Warrant Agreement, warrants to purchase an aggregate of 60,000,000 shares of Common Stock (the "Extension Warrants", together with the Note Warrants, the "Warrants"). All Warrants have identical terms. Each such holder was issued an Extension Warrant to purchase Common Stock in an amount equal to 100% of the shares underlying each such holder's previously outstanding Notes. Accordingly, Extension Warrants to purchase a total of 60,000,000 shares of Common Stock were issued, consisting of (i) Extension Warrants to purchase 11,000,000 shares of Common Stock issued to 10 accredited investors, and (ii) Extension Warrants to purchase 49,000,000 shares of Common Stock issued to Directors and Affiliates. For further details regarding these transactions, refer to Note 6. Related Party Transactions of the Unaudited Condensed Consolidated Financial Statements.

 

Pursuant to the Second Amended Note & Warrant Agreement, all Notes: (i) mature on December 31, 2017 (subject to earlier conversion or prepayment), (ii) earn interest at a rate of 5% per annum with interest payable at maturity, and (iii) are convertible into shares of Common Stock (A) automatically upon the closing of a qualified offering of no less than $5 million, at a conversion price of $0.05 per share or (B) voluntarily, within 15 days prior to maturity, at a conversion price of $0.05 per share. No Note may be prepaid without the prior written consent of the holder of such Note. The Notes are secured by a security interest in the Company's intellectual property. Upon a change of control of the Company, the holder of a Note will have the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

 

Capitalization

 

At our annual meeting of stockholders held on October 28, 2015, our stockholders approved a proposal to amend the Company’s Certificate of Incorporation in order to increase the number of shares of Common Stock authorized for issuance under our Charter from 180,000,000 to 500,000,000. The table below summaries our capitalization as of May 14, 2016:

 

   Shares 
Shares of Common Stock Authorized   500,000,000 
Shares of Preferred stock Authorized (none issued and outstanding)   15,000,000 
Total Authorized Shares   515,000,000 
      
Shares of Common Stock Issued and Outstanding   107,467,409 
Common Stock issuable upon the exercise of outstanding stock options at March 31, 2016   14,230,011(1)
Common Stock issuable upon the exercise of outstanding stock options subsequent to March 31, 2016   1,650,000(2)
Common Stock issuable upon the exercise of outstanding warrants at March 31, 2016   87,946,522(1)
Common Stock issuable upon the exercise of outstanding warrants subsequent to March 31, 2016   10,800,000(2)
Common Stock reserved for conversion of $4.9M Secured Convertible Notes at $0.05 per share   98,000,000(3)
Total securities outstanding and reserved for issuance at May 14, 2016   320,093,942(3)

 

1)For more detail on the exercise prices and expiration dates of the options and warrants please refer to the Stock Option Plans and Warrants to Purchase Common Stock sections of Note 5. Stockholders’ Deficit of the Unaudited Condensed Consolidated Financial Statements

 

2)For more detail on the exercise prices of the options and warrants please refer to Note 9.Subsequent Events of the Unaudited Condensed Consolidated Financial Statement

 

3)Does not include stock issued on the conversion of interest earned at 5% per annum on the Secured Convertible Notes

 

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At our annual meeting of stockholders held on October 28, 2015, our stockholders also approved an amendment to amend the Company’s Charter for the purposes of effecting a reverse stock split of our Common Stock at a later time and at any time until the next meeting of the Company’s stockholders which are entitled to vote on such actions, by a ratio of not less than 1-for-10 and not more than 1-for-200, and to authorize the Board of Directors to determine, at its discretion, the timing of the amendment and the specific ratio of the reverse stock split. There has been no such stock split as of the date of this filing.

 

Recent Developments

 

Canadian Forces/NATO

 

The Company is moving forward with the cooperation and support of Canadian Military mental health leaders for the purpose of conducting a clinical trial of the PEER technology. The Canadian Military has identified two study sites to support the proposed clinical trial using a protocol for PEER substantially similar to that used for the Walter Reed Trial. The Canadian study protocol has been reviewed and approved by the Research Ethics Board of University of Ottawa, equivalent to an institutional review board. We are advised by the Canadian Military that funding for the study has been secured. In anticipation of commencing the study, we have shipped EEG equipment to the Canadian Military for use in the study.

 

Marketing Initiatives

 

We conducted a marketing campaign throughout the month of October 2015 which resulted in a 10 fold increase in leads at 6% of our prior cost when compared to our prior marketing initiative. These leads have been referred to psychiatrists and other practitioners who use our PEER Online Technology. To date, the adoption of PEER Reports continues to be minimal, and the Company has generated no significant revenue from PEER Reports.

 

Our management believes that by investing in marketing automation we may be able to increase yield and reduce the time from a potential user’s awareness of our technology to their ultimate order of a PEER Report. We have initiated a targeted social media advertising campaign in the Southern California region to build regional demand, for purpose of referring EEG testing to the Company’s MYnd Analytics Center (“MAC Center”), which opened in March 2016. Initially, we expect that The MAC Center will offer two benefits to consumers and prescribers: 1) It will allow for easy scheduling and EEG administration in a central location, and 2) will provide a consistent high quality experience for all, while reducing physician workload. We plan on recruiting a physician to be co-located at the MAC Center. Furthermore, we anticipate opening a second MAC Center in Northern California, where our Medical Director is located.

  

Commercial Adoption Plan

 

As a result of the response to our October 2015 marketing initiative, and in conjunction with the planned start of the Canadian military study, the Company will commence a series of commercial studies starting in Southern California with the SoCal Study. The series of anticipated studies, termed in aggregate the SMART-MD Study, are expected to be based on the protocol and study endpoints used for the Walter Reed Trial. With several military bases and a high concentration of veterans in the region, we believe we are well positioned to recruit enrollees into the SoCal Study. We are currently exploring additional legs of the SMART-MD study with additional study partners and study sites in other regions of the country. This project will be led by Dr. Daniel Iosifescu, MD, Director of the Mood and Anxiety Disorders Program and Associate Professor of Psychiatry and Neuroscience at the Icahn School of Medicine at Mount Sinai Hospital, New York. The study protocol for the SoCal Study has been reviewed and approved by the Western Institutional Review Board. We anticipate enrolling 468 subjects into the study and tracking them for a period of twelve weeks. We estimate this project will take between 18 and 24 months to complete, once commenced, and will cost approximately $2.0 million. We currently do not have the funds necessary to complete this study and will need to raise additional funds to complete the study.

   

As we are recruiting for the SMART-MD Study, we will seek to generate media coverage and demand from regular patients. If we are able to secure sufficient additional financing, and our SMART-MD Study is successful, we intend to expand our direct-to-consumer marketing to the top 10 metro areas in the United States. We are currently developing a consumer-facing mobile app (web/ iOS/ Android), which management expects will automate patient-reported outcomes and support patient engagement. If we are successful in increasing patient-reported outcomes, we expect to be able to expand the PEER Online database, thereby improving its predictive accuracy.

 

Payer Reimbursement

 

We have been focused on invoicing payers to receive reimbursement for EEG recordings, the conversion of analog EEG to a digital Quantitative EEG (QEEG), and ultimately, the processing and delivery of a PEER Report. To date, we have limited experience with payer reimbursement and have been successful in obtaining reimbursement for a limited number of EEG recordings and QEEG conversions from payer organizations. Allowed reimbursement for the EEG and QEEG averaged approximately $275 for each of the two procedures, over the last 12 months. The PEER Report does not currently have a separate and distinct Current Procedural Terminology (CPT) code. We have submitted the PEER Report under CPT Code 99090 – Data Analysis – and to date have rarely been reimbursed. We currently bill each patient $400 for the PEER Report.

 

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United Healthcare issued an “emerging technology” approval for PEER Online in 2011, with guidance that PEER technology was one clinical study away from full reimbursement approval. We anticipate, but cannot guarantee, that the SMART-MD Study will satisfy United Healthcare’s requirement for an additional study, thereby permitting the potential for full reimbursement for PEER Reports. However, even if our SMART-MD Study is successful, there is no guarantee that it will satisfy United Healthcare’s requirement for an additional study, or even if it does, that United Healthcare will approve full reimbursement for PEER Reports, if at all. If our efforts are successful, we believe that payers could receive substantial benefit by encouraging the use of PEER Online, as they could benefit from a savings on medical expenses for patients who are successfully treated for their behavioral disorders.

 

One of the key elements in obtaining payer reimbursement is to become a registered CMS (Medicare/ Medicaid) provider. We are applying to become an accredited provider to CMS as an independent diagnostic testing facility, although our efforts may not be successful. If our application to become a registered CMS provider is approved, there is no guarantee that PEER Reports will be reimbursed.

 

FDA Inspection

 

In February 2016, we hosted an FDA inspection for five days. The inspection focused primarily on procedures, processes, communications and data associated with the Walter Reed Trial. The inspector did not cite any significant issue for action by the Company.

 

Financial Operations Overview

 

Critical Accounting Policies and Significant Judgments and Estimates

 

This management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.

 

Our significant accounting policies are described in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this report. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our unaudited condensed consolidated financial statements.

 

Revenue Recognition

 

We have generated limited revenues since our inception. Revenues for our Neurometric Service product are recognized when a PEER Report is delivered to a Client-Physician.

 

Stock-based Compensation Expense

 

Stock-based compensation expense, which is a non-cash charge, results from stock option grants. Compensation cost is measured at the grant date based on the calculated fair value of the award. We recognize stock-based compensation expense on a straight-line basis over the vesting period of the underlying option. The amount of stock-based compensation expense expected to be amortized in future periods may decrease if unvested options are subsequently cancelled or may increase if future option grants are made.

 

Long-Lived Assets and Intangible Assets

 

Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. If the Company determines that the carrying value of the asset is not recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived or intangible asset exceeds its fair value. Intangible assets with finite lives are amortized on a straight-line basis over their useful lives of ten years.

 

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Costs for software developed for internal use are accounted for through the capitalization of those costs incurred in connection with developing or obtaining internal-use software. Capitalized costs for internal-use software are included in intangible assets in the consolidated balance sheet. Capitalized software development costs are amortized over three years. Costs incurred during the preliminary project along with post-implementation stages of internal use computer software development and costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability of development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility and estimated economic life. The Company will begin amortizing the software over its estimated economic life once it has been placed into service.

 

Derivative accounting for convertible debt and warrants

 

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of September 30, 2015, the Company’s only derivative financial instruments were a series of convertible notes having a beneficial conversion feature based on the conversion price of the note relative to the market price of a share of Common Stock on the valuation date. See Notes 4 & 5.

 

Results of Operations for the three months ended March 31, 2016 and 2015

 

Our operations consist solely of our Neurometric Services business which is focused on the delivery of PEER Reports that enable psychiatrists and other physicians/prescribers to make more informed, patient-specific decisions when treating individual patients for behavioral (psychiatric and/or addictive) disorders based on the patient’s own physiology.

 

The following table presents consolidated statement of operations data for each of the periods indicated as a percentage of revenues.

 

   Three months ended 
   March 31, 
   2016   2015 
         
Revenues   100%   100%
Cost of revenues   7    9 
Gross profit   93    91 
Research   110    110 
Product development   884    918 
Sales and marketing   643    838 
General and administrative expenses   1,790    1,958 
Operating loss   (3,334)   (3,733)
Other income (expense), net   2,644    401 
Net loss   (690)%   (3,332)%

 

Revenues

 

   Three months ended   Percent 
   March 31,   Change 
   2016   2015     
Neurometric Service Revenues  $20,700   $20,900    (0)%
                

 

The number of paid PEER Reports delivered as part of our Neurometric Services business was 48 reports for both three-month periods ended March 31, 2016 and 2015. The average revenue was $415 per PEER Report for the quarter ended March 31, 2016. The total numbers of free PEER Reports processed were 4 and 3 for the quarters ended March 31, 2016 and 2015 respectively. These free PEER Reports are used for training, database-enhancement and compassionate-use purposes.

 

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Cost of Revenues

 

   Three months ended   Percent 
   March 31,   Change 
   2016   2015     
Cost of revenues               
Neurometric Services  $1,400   $1,800    (22)%

 

The cost of Neurometric Services revenues consisting of payroll costs (including stock-based compensation) and consulting costs, which were as follows:

 

   Three months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)      Consulting fees   1,400    1,800    (400)
Total Costs of Revenues  $1,400   $1,800   $(400)

 

Consulting costs associated with the processing of second generation PEER Reports are between $10 and $60 per report for EEG artifacting and neuro review services, and approximately $75 for EEG the collecting of the EEG.

 

Comparing the three month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)  Consulting fees decreased slightly for the quarter ended March 31, 2016 as we processed more EEGs with in-house resources.

 

Research

 

   Three months ended   Percent 
   March 31,   Change 
   2016   2015     
Research               
Neurometric Services  $22,700   $22,900    (1)%

  

Research expenses consist of payroll costs (including stock-based compensation), consulting fees and other miscellaneous costs which were as follows:

 

   Three months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)      Salary and benefit costs  $10,400   $10,400   $- 
(2)      Consulting fees   10,000    10,000    - 
(3)      Other miscellaneous costs   2,300    2,500    (200)
Total Research  $22,700   $22,900   $(200)

 

Comparing the three-month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)Salary and benefit costs, which are solely comprised of stock-based compensation stayed the consistent for the 2016 and 2015 periods; and

 

(2)Consulting costs remained the same for both periods as we have a consulting agreement with Dr. Schiller for the medical monitoring of the clinical trials, the training of clinical trial investigators and new PEER Online users. Additionally Dr. Schiller is also advising the Company on clinical trial design and product development; and

 

(3)Other miscellaneous costs for the 2016 and 2015 periods were substantially similar.

 

Product Development

 

   Three months ended   Percent 
   March 31,   Change 
   2016   2015     
Product Development               
Neurometric Services  $183,000   $191,900    (5)%

 

Product Development expenses consist of payroll costs (including stock-based compensation), consulting fees, system development costs, travel and miscellaneous costs which were as follows:

 

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   Three months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)     Salaries and benefit costs  $121,300   $120,300   $1,000 
(2)     Consulting fees   37,600    37,900    (300)
(3)     System development costs   13,100    9,200    3,900 
(4)     Other miscellaneous costs   11,000    24,500    (13,500)
Total Product Development  $183,000   $191,900   $(8,900)

 

Comparing the three-month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)Salaries and benefits increased by a net $1,000 in the quarter ended March 31, 2016 due to a slight increase in benefit costs; and

 

(2)Consulting fees remained substantially the same for the two periods in question. We have a consulting agreement with White Star Investment Management who provide us with compliance, quality and regulatory services as well as advisory services for clinical trial design and data management systems.

 

(3)System development and maintenance costs increased slightly in the quarter ended March 31, 2016, due to increased system maintenance costs and some minor system enhancements. Costs associated with the development of our Outcomes Application are currently being capitalized and will be depreciated over the application’s expected economic life; and

 

(4)Other miscellaneous expenses decreased by $13,500 in the quarter ended March 31, 2016, as costs incurred for the prior 2015 period, did not reoccur. These 2015 period costs were substantially associated with the Walter Reed Trial which has been closed.

 

Sales and Marketing

 

   Three months ended   Percent 
   March 31,   Change 
   2016   2015     
Sales and Marketing               
Neurometric Services  $133,000   $175,200    (24)%

 

Sales and marketing expenses associated with our Neurometric Services business consist primarily of payroll and benefit costs, including stock-based compensation, advertising and marketing, consulting fees and miscellaneous expenses. The reason for the change in these expenses is discussed below.

 

   Three months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)    Salaries and benefit costs  $33,500   $80,500   $(47,000)
(2)    Consulting fees   44,000    78,900    (34,900)
(3)    Advertising and marketing costs   45,000    8,300    36,700 
(4)    Other miscellaneous costs   10,500    7,500    3,000 
Total Sales and marketing  $133,000   $175,200   $(42,200)

 

Comparing the three-month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)Salaries and benefits for the quarter ended March 31, 2016, decreased by $47,000 from the 2015 period as certain stock-based compensation had become fully amortized prior to the 2016 period;
   
(2)Consulting fees for the quarter ended March 31, 2016, decreased by $34,900, from the 2015 period. During the 2015 period we spent $30,000 on a U.K. based consultant in a failed attempt to sign a service contract with a U.K. based healthcare group; additionally we incurred public relations costs for being on the CBS television show, “The Doctors”, which aired in January 2015.

 

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(3)Advertising and marketing expenses increased for the quarter ended March 31, 2016, by a net $36,700. During the 2016 period we incurred approximately $45,000 in social media advertising costs focused on the Southern California market. This expenditure has resulted in the generation of over 1,000 leads per month for potential patients. This increase in advertising expenditure in the 2016 period was partially offset by a reduction in the 2015 period expenditures as we did not utilize the services of a public relations agency during the 2016 period. 
   
 (4)Miscellaneous expenditures increased for the quarter ended March 31, 2016, by a net $3,000. The 2016 period increase was due to the subscription of a lead-automation software application to assist with the efficient tracking of leads generated by our social media advertising campaign; additionally we also incurred some costs related to establishing the MAC Center. These 2016 period cost increases were partially offset by a decrease in travel related expenditure to attend a conference in the 2015 period.

 

General and administrative

 

   Three months ended   Percent 
   March 31,   Change 
   2016   2015     
General and administrative               
Neurometric Services  $370,600   $409,200    (9)%

 

General and administrative expenses for our Neurometric Services business are largely comprised of payroll and benefit costs, including stock-based compensation, legal fees, other professional and consulting fees, patent costs, general administrative and occupancy costs, dues and subscriptions, conference, travel and miscellaneous costs. The reason for the change in these expenses is discussed below.

  

   Three months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)     Salaries and benefit costs  $179,900   $183,700   $(3,800)
(2)     Legal fees   14,900    67,800    (52,900)
(3)     Other professional and consulting fees   24,000    21,500    2,500 
(4)     Patent costs   44,300    30,700    13,600 
(5)     Marketing and investor relations costs   17,900    3,300    14,600 
(6)     Conference and travel costs   12,700    28,000    (15,300)
(7)     Dues & subscriptions fees   17,300    20,200    (2,900)
(8)     General administrative and occupancy costs   59,600    54,000    5,600 
Total General and administrative costs  $370,600   $409,200   $(38,600)

 

Comparing the three-month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)Salaries and benefit expenses decreased by $3,800 for the quarter ended March 31, 2016; The decrease was largely due to the reduction in the amortization of stock-based compensation from the 2015 period. The actual payroll expenditures remained unchanged during the two periods; and

(2)Legal fees decreased by $52,900 for the 2016 period. This reduction was substantially due to a renegotiation of our fees associated with our lobbying efforts. This reduction was partially offset by a $9,600 expenditure in litigation fees in the 2016 period: and

(3)Other professional and consulting fees had a minor change for the 2016 and 2015 periods which was related to the timing of our tax work;

(4)Patent costs increased by $13,600 due to the timing and volume of patent and trademark applications and maintenance costs;

(5)Marketing and investor relations costs increased by $14,600 for the 2016 period as we engaged a public relations firm, Dian Griesel International.

 

(6)Conference and travel expenditures decreased by $15,300 for the 2016 period. This is largely because international travel and a road show, which occurred in the 2015 period, did not repeat in the 2016 period.

(7)Dues and subscription expenditures had a minor reductions in the 2016 period; and 

 

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(8)General administrative and occupancy expenses increased by $5,600 in the quarter ended March 31, 2016, largely due to relocation costs associated with Corporate Office moving to its new location and an increase in Directors’ and Officers’ Insurance premiums.

 

Other Income and Expense

 

   Three months ended   Percent 
   March 31,   Change 
   2016   2015     
Other Income (Expense)               
Neurometric Services income (expense), net  $547,300   $84,600    547%

 

For the three-month periods ended March 31, 2016 and 2015, changes in net non-operating Other Income (Expense) for Neurometric Services were as follows:

 

·For the 2016 period, we incurred non-cash interest charges totaling $239,600 of which $49,900 was accrued interest on our convertible promissory notes at 5% per annum; the balance of $189,700 was comprised of warrant discount amortization and warrant and note conversion derivative liability charges; only $500 were for actual net interest paid in cash during the period. For the 2015 period, we incurred non-cash interest charges totaling $54,600 of which $22,100 was accrued interest on our convertible promissory notes at 5% per annum; the balance was comprised of $32,000 of beneficial conversion discount amortization on convertible promissory notes; only $500 were for actual net interest paid in cash during the period.

·Under ASC 815, all derivative instruments are required to be measured periodically at fair value and the resultant change in fair value of non-hedging derivative instruments are to be recognized in current earnings. For the quarter ended March 31, 2016, we revalued our derivative liabilities for the beneficial conversion feature of the convertible promissory notes which resulted in a net non-cash gain on derivative liabilities of $786,900. For the quarter ended March 31, 2015, we revalued our derivative liabilities for the promissory note beneficial conversion feature which resulted in a non-cash gain on derivative liabilities of $139,200.

 

Net Loss

 

   Three months ended   Percent 
   March 31,   Change 
   2016   2015     
Neurometric Services net loss  $(142,700)  $(696,300)   (80)%

 

The net loss for our Neurometric Services business of $142,700 for the three-month period ended March 31, 2016, compared to the approximately $696,300 loss in the prior year’s corresponding period is primarily due to the large non-cash accounting charges in our Other Income (Expense) expense category described above.

 

The Company’s operating loss of $690,000 for the 2016 period is a reduction of $90,100 from the $780,100 loss in the 2015 period. This is due to substantial reductions in expenditures across all cost centers. These reductions were due in part to the Walter Reed Trial being suspended, as well as continuing efforts to reduce expenditures across the board.

    

Results of Operations for the six months ended March 31, 2016 and 2015

 

Our operations consist solely of our Neurometric Services business which is focused on the delivery of PEER Reports that enable psychiatrists and other physicians/prescribers to make more informed, patient-specific decisions when treating individual patients for behavioral (psychiatric and/or addictive) disorders based on the patient’s own physiology.

 

The following table presents consolidated statement of operations data for each of the periods indicated as a percentage of revenues.

 

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   Six months ended 
   March 31, 
   2015   2015 
         
Revenues   100%   100%
Cost of revenues   6    7 
Gross profit   94    93 
Research   100    107 
Product development   675    1,001 
Sales and marketing   564    606 
General and administrative expenses   1,651    1,949 
Operating loss   (2,896)   (3,570)
Other income (expense), net   (5,020)   (25)
Net loss   (7916)%   (3,595)%

  

Revenues 

 

   Six months ended   Percent 
   March 31,   Change 
   2016   2015     
Neurometric Service Revenues  $45,400   $43,700    4%
                

 

The number of third party paid PEER Reports delivered as part of our Neurometric Services business increased to 108 for the six-month period ended March 31, 2016, up from 102 for the same period in the prior year. Our standard price per PEER Report is $400 for our commercial patients plus the fee for Company recorded EEGs and any ancillary services. The average revenue was $410 per PEER Report for the 2016 period. The total numbers of free PEER Reports processed were 9 and 4 for the six-month periods ended March 31, 2016 and 2015 respectively. These free PEER Reports are used for training, database-enhancement and compassionate-use purposes.

 

Cost of Revenues  

 

   Six months ended   Percent 
   March 31,   Change 
   2016   2015     
Cost of revenues               
Neurometric Services  $2,700   $2,900    (7)%

 

The cost of Neurometric Services revenues consisting of payroll costs (including stock-based compensation) and consulting costs, which were as follows:

  

   Six months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)      Consulting fees   2,700    2,900    (200)
Total Costs of Revenues  $2,700   $2,900   $(200)

 

Consulting costs associated with the processing of second generation PEER Reports are between $10 and $60 per report for EEG artifacting and neuro review services, and approximately $75 for EEG the collecting of the EEG.

 

Comparing the six months ended March 31, 2016, with the corresponding period in 2015:

 

(1)  Consulting fees decreased slightly for the six months ended March 31, 2016 as we processed more EEGs with in-house resources.

 

Research

 

   Six months ended   Percent 
   March 31,   Change 
   2016   2015     
Research               
Neurometric Services  $45,300   $46,700    (3)%

  

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Research expenses consist of payroll costs (including stock-based compensation), consulting fees and other miscellaneous costs which were as follows:

 

   Six months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)      Salary and benefit costs  $20,800   $20,800   $- 
(2)      Consulting fees   20,000    20,000    - 
(3)      Other miscellaneous costs   4,500    5,900    (1,400)
Total Research  $45,300   $46,700   $(1,400)

 

Comparing the six-month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)Salary and benefit costs, which are solely comprised of stock-based compensation stayed the consistent for the 2016 and 2015 periods; and

 

(2)Consulting costs remained the same for both periods as we have a consulting agreement with Dr. Schiller for the medical monitoring of the clinical trials, the training of clinical trial investigators and new PEER Online users. Additionally Dr. Schiller is also advising the Company on clinical trial design and product development; and

(3)Other miscellaneous costs for the 2016 period showed a slight decline as travel and insurance expenses for the 2015 period were marginally higher than in the 2016 period.

 

Product Development

  

   Six months ended   Percent 
   March 31,   Change 
   2016   2015     
Product Development               
Neurometric Services  $306,400   $437,500    (30)%

 

Product Development expenses consist of payroll costs (including stock-based compensation), consulting fees, system development costs, travel and miscellaneous costs which were as follows:

 

   Six months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)     Salaries and benefit costs  $225,100   $238,900   $(13,800)
(2)     Consulting fees   40,600    138,500    (97,900)
(3)     System development costs   24,500    45,100    (20,600)
(4)     Other miscellaneous costs   16,200    15,000    1,200 
Total Product Development  $306,400   $437,500   $(131,100)

 

Comparing the six-month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)Salaries and benefits decreased by a net $13,800 in the 2016 period; this decrease was primarily related to stock compensation becoming fully amortized during the 2016 period; and

 

(2)Consulting fees decreased by $97,900 for the 2016 period: this was substantially due to the Walter Reed Trial being suspended. Consequently, during the 2015 period we reduced the expenditure on our Clinical Research Organization and released clinical trial coordinators who were contracted through the Henry Jackson Foundation to work on the trial; and 

 

(3)System development and maintenance costs decreased by $20,600 in the 2016 period, due to the stage in the development cycle and in order to conserve cash; in the 2015 period, system development and maintenance costs were elevated due to further development of our Salesforce.com based applications, including the development of a patient referral portal to handle incoming inquiries, the development of a system dashboard and the migration of our data to a more robust and secure hosting service operated by Microsoft; and

 

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(4)Other miscellaneous expenses had a marginal net increase of $1,200 in the 2016 period.

 

Sales and Marketing

 

   Six months ended   Percent 
   March 31,   Change 
   2016   2015     
Sales and Marketing               
Neurometric Services  $256,100   $264,900    3%

 

Sales and marketing expenses associated with our Neurometric Services business consist primarily of payroll and benefit costs, including stock-based compensation, advertising and marketing, consulting fees and miscellaneous expenses. The reason for the change in these expenses is discussed below.

 

   Six months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)    Salaries and benefit costs  $68,600   $117,500   $(48,900)
(2)    Consulting fees   77,100    108,900    (31,800)
(3)    Advertising and marketing costs   93,400    29,000    64,400 
(4)    Other miscellaneous costs   17,000    9,500    7,500 
Total Sales and marketing  $256,100   $264,900   $(8,800)

 

Comparing the six-month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)Salaries and benefits for the 2016 period, decreased by $48,900 as some stock compensation had become fully amortized; and

(2)Consulting fees for the 2016 period decreased by $31,800: this is primarily due to the non-recurrence of consulting fees amounting to $30,000 paid to a U.K. based consultant during the 2015 period in a failed attempt to sign a service contract with a U.K. based healthcare group; additionally we incurred some public relations costs for being on the CBS television show, “The Doctors”, which aired in January 2015.

 

(3)Advertising and marketing expenses increased for 2016 period by a net $64,400; of this increase approximately $66,400 was due to social media advertising focused on the Southern California market which has resulted in a substantial increase in lead generation to over 1,000 potential patient leads per month.

(4)Miscellaneous expenditures increased for the 2016 period by a net $7,500. The 2016 period increase was due to the subscription of a lead-automation software application to assist with the efficient tracking of leads generated by our social media advertising campaign; additionally we also incurred some costs related to establishing the MAC Center. These 2016 period cost increases were partially offset by a decrease in travel related expenditure to attend a conference in the 2015 period.

 

General and administrative

 

   Six months ended   Percent 
   March 31,   Change 
   2016   2015     
General and administrative               
Neurometric Services  $749,600   $851,900    (12)%

 

General and administrative expenses for our Neurometric Services business are largely comprised of payroll and benefit costs, including stock-based compensation, legal fees, other professional and consulting fees, patent costs, general administrative and occupancy costs, dues and subscriptions, conference, travel and miscellaneous costs. The reason for the change in these expenses is discussed below.

 

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   Six months ended 
   March 31, 
Key Expense Categories  2016   2015   Change 
(1)     Salaries and benefit costs  $353,100   $363,600   $(10,500)
(2)     Legal fees   53,000    120,500    (67,500)
(3)     Other professional and consulting fees   74,000    71,500    2,500 
(4)     Patent costs   51,300    58,500    (7,200)
(5)     Marketing and investor relations costs   21,800    48,600    (26,800)
(6)     Conference and travel costs   30,200    42,900    (12,700)
(7)     Dues & subscriptions fees   40,800    38,500    2,300 
(8)     General administrative and occupancy costs   125,400    107,800    17,600 
Total General and administrative costs  $749,600   $851,900   $(102,300)

 

Comparing the six-month period ended March 31, 2016, with the corresponding period in 2015:

 

(1)Salaries and benefit expenses decreased by $10,500 for the 2016 period; this was primarily due to a net $18,900 reduction in stock compensation as stock options became fully vested; the remainder of the difference was offset by a minor increases in payroll taxes and benefit expenses. The actual salary expenditures remained unchanged during the two periods; and

 

(2)Legal fees decreased by $67,500 for the 2016 period. This reduction was substantially due to a renegotiation of our fees associated with our lobbying efforts. This reduction was partially offset by a $12,100 increase in expenditure in litigation fees in the 2016 period and an increase in legal fees due to the documentation of our private placement financing activities; and

 

(3)Other professional and consulting fees had minimal change for the 2016 and 2015 periods; the minor increase was due to the timing of tax services; and

 

(4)Patent costs decreased by $7,200 due to the timing and volume of patent and trademark applications and maintenance costs;

 

(5)Marketing and investor relations costs decreased by a net $26,800 for the 2016 period: The decrease was primarily due to the engagement of RedChip Companies, Inc. for investor relations services during the 2015 period which cost approximately $22,500 in fees and $21,600 as the fair value of issued warrants. This 2015 period expenditure has been partially offset by the engagement of a public relations firm, Dian Griesel International, during the 2016 period;

 

(6)Conference and travel costs decreased by a net $12,700 for the 2016 period. This is largely because international travel and a road show, which occurred in the 2015 period, did not reoccur in the 2016 period. The reduction of cost was partially offset by management traveling to New York for the Annual Stockholders’ Meeting during the 2016 period.

 

(7)Dues and subscription costs increased marginally by $2,300 for 2016 period largely due to fees associated with our Annual Stockholders Meeting held in October 2015; and 

 

(8)General, administrative and occupancy expenses increased by $17,600 in the 2016 period, largely due to printing costs associated with the Annual Stockholders’ Meeting, an increase in D&O and Workers’ Compensation insurances and costs associated with the move of our corporate office to our new location.

 

Other Expense

 

   Six months ended   Percent 
   March 31,   Change 
   2016   2015     
Other Expense               
Neurometric Services expense, net  $(2,279,000)  $(6,700)   33915%

 

For the six-month periods ended March 31, 2016 and 2015, changes in net non-operating Other Income (Expense) for Neurometric Services were as follows:

 

·For the 2016 period, we incurred non-cash interest charges totaling $739,800 of which $88,800 was accrued interest on our convertible promissory notes at 5% per annum; the balance of $651,000 was comprised of warrant discount amortization and warrant and note conversion derivative liability charges; only $1,300 was for actual net interest paid in cash during the period. For the 2015 period, we incurred non-cash interest charges totaling $106,000 of which $42,700 was accrued interest on our convertible promissory notes at 5% per annum; the balance was comprised of $61,900 of beneficial conversion discount amortization on convertible promissory notes; only $1,400 was for actual net interest paid in cash during the period.

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·Under ASC 815, all derivative instruments are required to be measured periodically at fair value and the resultant change in fair value of non-hedging derivative instruments are to be recognized in current earnings. For the 2016 period, we revalued our derivative liabilities for the beneficial conversion feature of the convertible promissory notes which resulted in a net non-cash gain on derivative liabilities of $798,200. For 2015 period, we revalued our derivative liabilities for the promissory note beneficial conversion feature which resulted in a non-cash loss on derivative liabilities of $99,300.
   
·For the 2016 period, we incurred a non-cash loss of $2,337,400 as a result of the accounting for the extinguishment of debt. The debt extinguishment accounting was precipitated by the changes in the fair value of existing notes pursuant to the Amended Note & Warrant Purchase Agreement which extended the maturity date of the existing Notes and provided 100% warrant coverage of the shares underlying the Notes.  No similar transaction occurred in the 2015 period.

 

Net Loss  

 

   Six months ended   Percent 
   March 31,   Change 
   2016   2015     
Neurometric Services net loss  $(3,594,000)  $(1,570,900)   295%

 

The net loss for our Neurometric Services business of $3.6 million for the six-month period ended March 31, 2016, compared to the approximately $1.6 million loss in the corresponding period in the prior year is primarily due to the large non-cash accounting charges in our Other Income (Expense) expense category described above.

 

The Company’s operating loss of $1.3 million for the six-month period ended March 31, 2016, is a reduction of $0.2 million from the $1.6 million loss in the corresponding period in the prior year. This is due to substantial reductions in expenditures across all cost centers. These reductions were due in part to the Walter Reed Trial being suspended as well as continuing efforts to reduce expenditures across the board.

 

Liquidity and Capital Resources

 

Since our inception, we have never been profitable and we have generated significant losses. As of March 31, 2016, we had an accumulated deficit of approximately $66.2 million compared to our accumulated deficit as of March 31, 2015, which was approximately $60.8 million. We have not yet achieved profitability and anticipate that we will continue to incur losses for the foreseeable future. Our management expects that with our proposed clinical trials, sales and marketing and general and administrative costs, our expenditures will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability.

 

As of March 31, 2016, we had $440,200 in cash and cash equivalents and a working capital deficit of approximately $1.05 million. This is compared to our cash position of $310,000 in cash and cash equivalents as of March 31, 2015, and a working capital deficit of $3.15 million. The reduction in our working capital deficit is primarily due to the reclassification of our secured convertible debt and associated derivative liabilities to long-term liabilities as the maturity date of the debt was extended to December 2017. Furthermore, our cash on hand and prepaid assets increased in the 2016 period, thereby further reducing our working capital deficit.

 

The Company has been funded through multiple rounds of private placements primarily from members of our Board or our affiliates. For details please refer to Item 2. Private Placement Transactions and Notes 3 and 6 to the Unaudited Condensed Consolidated Financial Statements.

 

Since September 22, 2014, we have raised $4.9 million of Secured Convertible Notes. These Notes are automatically convertible upon an equity offering of $5 million or more, or can be voluntarily converted at the option of the Noteholder 15 days before the maturity date of December 31, 2017. We do not now have, and, unless the notes are automatically or voluntarily converted, are not likely to have on the maturity date thereof, the cash necessary to repay the Notes when they become due.  If we are unable to repay the Notes when due, the holders could pursue any remedies available to them, which could result in a complete foreclosure on their security interest in the assets of the Company in which case, the common stock of the Company would likely have no value.

 

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Operating Capital and Capital Expenditure Requirements

 

Our continued operating losses and limited capital raise substantial doubt about our ability to continue as a going concern. We have limited ability to meet our current obligations as they become due and we are in arrears with certain of our creditors.  Because of our substantial indebtedness, we are insolvent and need to raise additional funds and restructure our debt in order to continue our operations. Our financial statements include an opinion of our auditors that our continued operating losses and limited capital raise substantial doubt about our ability to continue as an ongoing concern.

 

We need additional funds to conduct our SoCal Study clinical trial and to continue our operations and will need substantial additional funds before we can implement our initiatives to increase demand for our PEER Online services. We are continuing to explore additional sources of capital; however, we do not know whether additional funding will be available on acceptable terms, or at all, especially given the economic conditions that currently prevail. Furthermore, any additional equity funding may result in significant dilution to existing stockholders and, if we incur debt financing, a substantial portion of our operating cash flow may be dedicated to the repayment of principal and interest on such indebtedness, thus limiting funds available for our business activities.

 

We expect to continue to incur operating losses in the future. We anticipate that our cash on hand and cash generated through our operations will not be sufficient to fund our operations beyond the next few months. If adequate funds are not available, it would have a material adverse effect on our business, financial condition and/or results of operations, and could cause us to have to cease operations.

  

The amount of capital we will need to conduct our operations and the time at which we will require such capital may vary significantly depending upon a number of factors, such as:

 

·the amount and timing of costs we incur in connection with our clinical trials and product development activities, including enhancements to our PEER Online database and costs we incur to further validate the efficacy of our technology;
·the amount and timing of costs we incur in connection with the expansion of our commercial operations, including our selling and marketing efforts;
·whether we incur additional consulting and legal fees in our efforts to conducting a Non-Significant Risk study under an FDA requirements, which will enable us to obtain a 510(k) clearance from the FDA; and
·if we expand our business by acquiring or investing in complimentary businesses.

 

Sources of Liquidity

 

Since our inception, substantially all of our operations have been financed from equity and debt financings. From June, 2010, through to November, 2012, we raised $9.6 million through five rounds of private placements of convertible secured notes with 34 accredited investors. All the aforementioned notes were converted, along with the interest thereon, by September 30, 2013. Of these notes, $5.6 million, or 58% in principal amount, were purchased by directors, officers and affiliates of the Company.

 

Since February, 2013, through July 2014 we raised $4.8 million through the private placement of equity at $0.25 per share of Common Stock. Of these equity offerings $2.1 million, or 44%, were purchased by directors, officers and affiliates of the Company.

 

Between September 2014, and May 2016 we have raised $4.9 million through the private placement of secured convertible debt with an exercise price of $0.05 per share of Common Stock and the issuance of 100% warrant coverage on the common stock underlying the secured convertible debt exercisable at $0.05 per share. Of this funding $4.45 million, or 91%, was provided by directors, an officer and affiliates of the Company.

 

For details of these financings please See Note 3 and Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

 

Cash Flows

 

Net cash used in operating activities was $1,339,900 for the six months ended March 31, 2016, compared to $1,343,700 for the same period in 2015. Consequently, the net reduction in cash used for operations between the two periods was only $3,800.

 

During the six months ended March 31, 2016, the Company purchased $1,000 of office furniture for the MAC Center and invested $9,000 in an intangible asset, which is the development of a software application to collect patient outcomes. During the corresponding period in 2015, the Company had no investment activities.

 

Financing activities for the six-month period ended March 31, 2016, consisted of $1.36 million in cash proceeds received from private placements pursuant to the Second Amended Note & Warrant Purchase Agreement from four accredited investors of which three are affiliated with the Company as follows: $500,000 from John Pappajohn, a director; $750,000 from RSJ PE, of which Michal Votruba, a director, is a director; and $10,000 from Geoffrey Harris, a director. During the corresponding period in 2015 the Company raised $415,000 from affiliates as follows: $215,000 from The Tierney Family Trust, a greater than 5% stockholder, of which Thomas Tierney our former Chairman is a trustee; $100,000 from The Follman Family Trust, of which our director Robert Follman is a trustee; and $100,000 from John Pappajohn, a director. The Company used $2,000 and $1,900 during the 2016 and 2015 periods respectively, to repay capital leases.

 

 40 

 

   

Income Taxes

 

Current and non-current deferred taxes have been recorded on a net basis in the accompanying balance sheet. As of September 30, 2015, the Company had Federal net operating loss carryforwards of approximately $32.8 million and State net operating loss carryforwards of approximately $55.6 million. Both the Federal and State net operating loss carryforwards will begin to expire in 2035. Our ability to utilize net operating loss carryforwards may be limited in the event that a change in ownership, as defined in the Internal Revenue Code, occurs in the future. The Company has placed a valuation allowance against the deferred tax assets in excess of deferred tax liabilities due to the uncertainty surrounding the realization of such excess tax assets. Management periodically evaluates the recoverability of the deferred tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced accordingly.

  

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements or financing activities with special purpose entities.

 

Item 3.         Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable.

 

Item 4.         Controls and Procedures.

 

Disclosure Controls and Procedures

 

Our management, including our principal executive officer (PEO) and principal financial officer (PFO), conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rule 13a-15, as of March 31, 2016, the end of the period covered by this report.  Based on this evaluation, our PEO and PFO concluded that our disclosure controls and procedures were effective as of March 31, 2016.

 

A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

A “significant deficiency” is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

 

To the knowledge of our management, including our PEO and PFO, there were none of the aforementioned deficiencies leading to a misstatement of our results of operations for the six months ended March 31, 2016, or statement of financial position as of March 31, 2016.

 

Changes in Internal Control Over Financial Reporting

 

During the quarterly period ending March 31, 2016, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

 41 

 

 

PART II

OTHER INFORMATION

 

Item 1.         Legal Proceedings

 

Please see Note 8 of our Notes to Unaudited Condensed Consolidated Financial Statements for a description of our litigation with Leonard Brandt, which disclosure is incorporated herein by reference.

 

Item 1A.         Risk Factors

 

There have been no material changes to the risk factors included in the Risk Factors section in our Annual Report on Form 10-K for the year ended September 30, 2015.

  

Item 2.            Unregistered Sales of Equity Securities and Use of Proceeds

 

Private Placement Transactions

 

From September 22, 2014, through May 4, 2016, the Company entered into the Note Purchase and Warrant Purchase Agreements in connection with a bridge financing, with 18 accredited investors. Pursuant to the Second Amended Note & Warrant Purchase Agreement, the Company issued 32 secured convertible promissory notes and warrants in the aggregate principal amount of $4.9 million.

 

Refer to Note 3. Convertible Debt and Equity Financings, Note 6. Related Party Transactions and Note 9.Subsequent Events of our Unaudited Condensed Consolidated Financial Statements for details of the abovementioned transaction, which detail is incorporated herein by reference to such notes.

 

The issuance of the securities described above was not registered under the Securities Act.  No general solicitation or advertising was used in connection with the issuance.  In making the issuance to accredited investors without registration under the Securities Act, the Company relied upon the exemption from registration contained in Section 4(a)(2) of the Securities Act and/or Regulation D thereunder.

  

Item 6.            Exhibits

 

The following exhibits are filed as part of this report or incorporated by reference herein:

 

Exhibit

Number

  Exhibit Title
31.1   Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

  

 42 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  MYnd Analytics, Inc.
   
Date: May 16, 2016   /s/ George Carpenter
  By: George Carpenter
  Its: Chief Executive Officer (Principal Executive Officer)
     
    /s/ Paul Buck
  By: Paul Buck
  Its: Chief Financial Officer (Principal Financial Officer)

 

 43 

    

EX-31.1 2 s103228_ex31-1.htm EXHIBIT 31-1

 

EXHIBIT 31.1

 

Certification of CEO Pursuant to

Securities Exchange Act Rules 13a-14 and 15d-14

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

 

I, George Carpenter, certify that:

 

 1. I have reviewed this quarterly report on Form 10-Q of MYnd Analytics, Inc. for the quarter ended March 31, 2016;

 

 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 16, 2016

  /s/ George Carpenter
  Name: George Carpenter
  Title: Chief Executive Officer (Principal Executive Officer)

 

   

 

 

EX-31.2 3 s103228_ex31-2.htm EXHIBIT 31-2

 

EXHIBIT 31.2

 

Certification of CFO Pursuant to

Securities Exchange Act Rules 13a-14 and 15d-14

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Paul Buck, certify that:

 

 1. I have reviewed this quarterly report on Form 10-Q of MYnd Analytics, Inc. for the quarter ended March 31, 2016;

 

 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 16, 2016

  /s/ Paul Buck
  Name: Paul Buck
  Title: Chief Financial Officer (Principal Financial Officer)

 

   

 

EX-32.1 4 s103228_ex32-1.htm EXHIBIT 32-1

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (the “Report”) by MYnd Analytics, Inc. (the “Registrant”), the undersigned hereby certifies that to the best of his knowledge:

 

1.    the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

Date: May 16, 2016 /s/ George Carpenter
  George Carpenter
  Chief Executive Officer (Principal Executive Officer)
   
Date: May 16, 2016 /s/ Paul Buck
  Paul Buck
  Chief Financial Officer (Principal Financial Officer)

 

   

 

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Written promise to pay a note which can be exchanged for a specified quantity of securities (typically common stock), at the option of the issuer or the holder. Information relating to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. Person serving on the board of directors (who collectively have responsibility for governing the entity). It represents as a number of accredited investors. It represents as a number of secured notes purchase. Information relating to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. Represent the information about derivatives write off. Debt securities that can be exchanged for equity of the debt issuer at the option of the issuer or the holder. Debt securities that can be exchanged for equity of the debt issuer at the option of the issuer or the holder. Debt securities that can be exchanged for equity of the debt issuer at the option of the issuer or the holder. Debt securities that can be exchanged for equity of the debt issuer at the option of the issuer or the holder. Debt securities that can be exchanged for equity of the debt issuer at the option of the issuer or the holder. Debt securities that can be exchanged for equity of the debt issuer at the option of the issuer or the holder. Represent the information about plan. Represent the information about plan. Information by range of option prices pertaining to options granted. Represent the information about agreement. Represent the information about entity. Represent the information about entity. The maximum number of common and preferred shares permitted to be issued by an entity's charter and bylaws. Represent the information about the share based payment award vesting date. Average remaining contractual term for option awards outstanding, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. Information relating to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. Person serving on the board of directors and affiliates. Number of securities into which the class of warrant or right may be converted. For example, but not limited to, 500,000 warrants may be converted into 1,000,000 shares. Primary financial statement caption encompassing product development. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Weighted average remaining contractual term for warrant options, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. Weighted average price at which grantees can acquire the shares reserved for issuance under the warrant. Weighted average per share amount at which grantees can acquire warrant by exercise of options. Weighted average price at which option holders acquired shares when converting their warrant into shares. Weighted average price at which grantees could have acquired the underlying shares with respect to warrant that were terminated. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information by range of option prices pertaining to options granted. Information relating to termination agreement. Information relating to governance agreement. Information relating to termination agreement 1. Person serving on the board of directors (who collectively have responsibility for governing the entity). It represents as a amount of forgiveness salary. It represents as a number of directors nominate. Refers to number of unregistered stock. Information relating to marketing service consulting agreement. Information relating to related party. It represents as a long consulting engagement agreement. It refers to marketing expense incurred on monthly basis during the period. It represents as a amount of fair value of options. A monthly fee charged for services from professionals such as doctors, lawyers and accountants. The term is often expanded to include other professions, for example, pharmacists charging to maintain a medicinal profile of a client or customer. Written promise to pay a note which can be exchanged for a specified quantity of securities (typically common stock), at the option of the issuer or the holder. Number of securities into which the class of warrant or right may be converted. For example, but not limited to, 500,000 warrants may be converted into 1,000,000 shares. Information pertaining to judicial proceeding and alternative dispute resolution or claim. Refers to lease. Refers to lease. Refers to the assets of the company as a property plant. The amount of the monthly lease payments due under the operating lease. This element represents that, the term of the capital lease. Date which lease commence or group of leases is set to expire, in CCYY-MM-DD format. The expense related to research activities incurred by the entity during the reporting period. The aggregate costs incurred in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique. Aggregate carrying value as of the balance sheet date of the liabilities for all deferred compensation arrangements payable to related party within one year (or the operating cycle, if longer). Represents currently earned compensation under compensation arrangements that is not actually paid until a later date. The portion of the carrying value of long-term convertible debt as of the balance sheet date that is scheduled to be repaid within one year or in the normal operating cycle if longer to related party. Convertible debt is a financial instrument which can be exchanged for a specified amount of another security, typically the entity's common stock, at the option of the issuer or the holder. The portion of the carrying value of long-term convertible debt as of the balance sheet date that is scheduled to be repaid within one year or in the normal operating cycle if longer. Convertible debt is a financial instrument which can be exchanged for a specified amount of another security, typically the entity's common stock, at the option of the issuer or the holder. Amount of increase in additional paid in capital (APIC) resulting from the issuance of warrants. Includes allocation of proceeds of debt securities issued with detachable stock purchase warrants. Disclosure of accounting policy for trade and other accounts payables. Tabular disclosure of changes in derivative liabilities during the period. Tabular disclosure of the changes in warrant outstanding. Tabular disclosure of the changes in warrant outstanding. Tabular disclosure of extension warrants issued during the period. Information relating to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. 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Document and Entity Information - shares
6 Months Ended
Mar. 31, 2016
May. 13, 2016
Document And Entity Information    
Entity Registrant Name MYnd Analytics, Inc.  
Entity Central Index Key 0000822370  
Document Type 10-Q  
Trading Symbol CNSO  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Current Fiscal Year End Date --09-30  
Entity a Well-known Seasoned Issuer No  
Entity a Voluntary Filer No  
Entity's Reporting Status Current Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   107,467,409
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2016  
XML 12 R2.htm IDEA: XBRL DOCUMENT v3.4.0.3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
REVENUES        
Neurometric Services $ 20,700 $ 20,900 $ 45,400 $ 43,700
OPERATING EXPENSES        
Cost of neurometric services revenue 1,400 1,800 2,700 2,900
Research 22,700 22,900 45,300 46,700
Product development 183,000 191,900 306,400 437,500
Sales and marketing 133,000 175,200 256,100 264,900
General and administrative 370,600 409,200 749,600 851,900
Total operating expenses 710,700 801,000 1,360,100 1,603,900
OPERATING LOSS (690,000) (780,100) (1,314,700) (1,560,200)
OTHER INCOME (EXPENSE):        
Interest expense, net $ (239,600) $ (54,600) (739,800) $ (106,000)
Loss on extinguishment of debt (2,337,400)
Gain on derivative liabilities $ 786,900 $ 139,200 798,200 $ 99,300
Total other income (expense) 547,300 84,600 (2,279,000) (6,700)
LOSS BEFORE PROVISION FOR INCOME TAXES $ (142,700) (695,500) (3,593,700) (1,566,900)
Provision for income taxes 800 300 4,000
NET LOSS $ (142,700) $ (696,300) $ (3,594,000) $ (1,570,900)
BASIC AND DILUTED LOSS PER SHARE:        
From continuing operations (in dollars per share) $ 0.00 $ (0.01) $ (0.04) $ (0.02)
WEIGHTED AVERAGE SHARES OUTSTANDING:        
Basic and Diluted (in shares) 102,669,022 101,667,409 102,543,215 101,667,409
XML 13 R3.htm IDEA: XBRL DOCUMENT v3.4.0.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
Mar. 31, 2016
Sep. 30, 2015
CURRENT ASSETS:    
Cash $ 440,200 $ 432,100
Accounts receivable (net of allowance for doubtful accounts of $1,200 and $1,200 as of March 31, 2016, and September 30, 2015, respectively) 6,800 11,800
Prepaid insurance 111,700 57,400
Prepaid other assets 58,900 46,900
Total current assets 617,600 548,200
Furniture and equipment, net 7,700 $ 1,700
Intangible assets 9,000
Other assets 25,600 $ 17,200
TOTAL ASSETS 659,900 567,100
CURRENT LIABILITIES:    
Accounts payable (including $10,000 and $10,000 to related parties as of March 31, 2016, and September 30, 2015, respectively) 744,200 852,000
Accrued liabilities 182,600 156,300
Accrued compensation 433,000 418,500
Accrued compensation - related parties 259,700 226,100
Deferred revenue - grant funds 45,900 45,900
Current portion of capital lease 1,700 2,400
Total current liabilities 1,667,100 1,701,200
LONG-TERM LIABILITIES    
Secured convertible debt - related parties (net of discounts $363,100 and $209,900 as of March 31, 2016 and September 30, 2015, respectively) 3,346,900 2,240,100
Secured convertible debt - other (net of discounts $30,700 and $28,900 as of March 31, 2016, and September 30, 2015, respectively) 619,300 525,700
Accrued interest 192,400 103,600
Derivative liability 1,441,700 $ 833,000
Long term portion of capital lease 5,400
Total long-term liabilities 5,605,700 $ 3,702,400
TOTAL LIABILITIES 7,272,800 5,403,600
STOCKHOLDERS' DEFICIT:    
Common stock, $0.001 par value; authorized 500,000,000 shares and issued and outstanding 102,717,409 shares and 102,417,409 shares as of March 31, 2016 and September 30, 2015, respectively 102,700 102,400
Additional paid-in capital 59,471,300 57,654,000
Accumulated deficit (66,186,900) (62,592,900)
Total stockholders' deficit (6,612,900) (4,836,500)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 659,900 $ 567,100
XML 14 R4.htm IDEA: XBRL DOCUMENT v3.4.0.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)
Mar. 31, 2016
Sep. 30, 2015
Allowance for doubtful accounts $ 1,200 $ 1,200
Accounts payable due to related parties $ 10,000 $ 10,000
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, authorized 500,000,000 500,000,000
Common stock, issued 102,717,409 102,417,409
Common stock, outstanding 102,717,409 102,417,409
Management [Member]    
Secured convertible debt, net of discount $ 363,100 $ 209,900
Eleven Accredited Investors [Member]    
Secured convertible debt, net of discount $ 30,700 $ 28,900
XML 15 R5.htm IDEA: XBRL DOCUMENT v3.4.0.3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
OPERATING ACTIVITIES:    
Net loss $ (3,594,000) $ (1,570,900)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 2,700 4,400
Loss on derivative liability valuation $ (798,200) (67,300)
Valuation of warrants - investor relations 21,600
Stock based compensation $ 70,900 $ 162,200
Grant of common stock 6,900
Loss on extinguishment of debt 2,337,400
Financing expenses 738,600 $ 72,700
Changes in operating assets and liabilities:    
Accounts receivable 5,000 3,900
Prepaids and other (66,300) (56,500)
Accounts payable and accrued liabilities (81,600) $ 12,300
Security deposits (9,400)
Deferred compensation 48,100 $ 73,900
Net cash used in operating activities (1,339,900) $ (1,343,700)
INVESTING ACTIVITIES:    
Purchase of fixed assets (1,000)
Intangible assets (9,000)
Net cash used in investing activities (10,000)
FINANCING ACTIVITIES:    
Repayment of a capital lease (2,000) $ (1,900)
Net proceeds from issuance of secured convertible debt 1,360,000 415,000
Net cash provided by (used in) financing activities 1,358,000 413,100
NET INCREASE (DECREASE) IN CASH 8,100 (930,600)
CASH- BEGINNING OF THE QUARTER 432,100 1,240,600
CASH- END OF THE QUARTER 440,200 310,000
Cash paid during the period for:    
Interest 1,300 1,500
Income taxes $ 300 $ 4,000
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.4.0.3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - 6 months ended Mar. 31, 2016 - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Total
Balance at beginning at Sep. 30, 2015 $ 102,400 $ 57,654,000 $ (62,592,900) $ (4,836,500)
Balance at beginning (in shares) at Sep. 30, 2015 102,417,409      
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Stock-based compensation 70,900 70,900
Extension warrants issued to note holders 1,196,000 1,196,000
Note warrants issued to note holders 543,800 543,800
Stock issued to vendor $ 300 $ 6,600 6,900
Stock issued to vendor (in shares) 300,000      
Net loss $ (3,594,000) (3,594,000)
Balance at ending at Mar. 31, 2016 $ 102,700 $ 59,471,300 $ (66,186,900) $ (6,612,900)
Balance at ending (in shares) at Mar. 31, 2016 102,717,409      
XML 17 R7.htm IDEA: XBRL DOCUMENT v3.4.0.3
NATURE OF OPERATIONS
6 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF OPERATIONS
1. NATURE OF OPERATIONS

 

At our annual meeting of stockholders held on October 28, 2015, our stockholders approved a proposal to change the Company’s name to MYnd Analytics, Inc. from CNS Response, Inc. The Company’s charter was officially amended on November 2, 2015.

 

MYnd Analytics, Inc. (“MYnd,” “CNS,” “we,” “us,” “our,” or the “Company”), formerly known as CNS Response Inc., was incorporated in Delaware on March 20, 1987, under the name Age Research, Inc.  Prior to January 16, 2007, the Company (then called Strativation, Inc.) was a “shell company” with nominal assets and our sole business was to identify, evaluate and investigate various companies to acquire or with which to merge.  On January 16, 2007, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CNS Response, Inc., a California corporation formed on January 11, 2000 (“CNS California”), and CNS Merger Corporation, a California corporation and the Company’s wholly-owned subsidiary (“MergerCo”) pursuant to which the Company agreed to acquire CNS California in a merger transaction wherein MergerCo would merge with and into CNS California, with CNS California being the surviving corporation (the “Merger”). On March 7, 2007, the Merger closed, CNS California became a wholly-owned subsidiary of the Company, and on the same date the corporate name was changed from Strativation, Inc. to CNS Response, Inc. At the annual meeting held on October 28, 2015, stockholders approved a change in our name from CNS Response, Inc. to MYnd Analytics, Inc. On November 2, 2015, the Company filed an amendment to its Articles of Incorporation which, among other things, effected the name change to MYnd Analytics, Inc.

 

The Company is a predictive analytics company that provides objective clinical decision support to mental healthcare providers for the personalized treatment of behavioral disorders, including depression, anxiety, bipolar disorder, post-traumatic stress disorder (“PTSD”) and other non-psychotic disorders. The Company uses its proprietary neurometric platform, PEER Online, to generate Psychiatric EEG Evaluation Registry (“PEER”) Reports to predict the likelihood of response by an individual to a range of medications prescribed for the treatment of behavioral disorders. Management intends to conduct a series of clinical trials, termed in aggregate the SMART-MD trials. The protocols used in this series of trials will be substantially similar to the protocol approved by the Walter Reed Institutional Review Board (the "Walter Reed IRB") during our 2013-2014 clinical trial at Walter Reed National Military Medical Center (“Walter Reed”) and Fort Belvoir Community Hospital (“Fort Belvoir”) (collectively, the “Walter Reed PEER Trial”). The protocol utilizes our neurometric platform to provide PEER Reports to clinicians treating patients with a primary diagnosis of depression with various comorbidities allowed, if present, to include PTSD and mild traumatic brain injury (“mTBI). The first trial in the series is the Canadian Forces Trial followed by parallel trials in Southern California, the SoCal Trial, and other U.S. locations. The protocols for the Canadian Forces Trial and the SoCal Trial have been approved by their respective institutional review boards and are ready for initiation and the recruitment of study subjects. The objective of the SMART-MD trials is to provide additional information to demonstrate the clinical and economic utility of our neurometric platform. We are in discussions to conduct additional studies with other groups and organizations. We are also focusing our direct-to-consumer marketing efforts using social media within California to boost our commercialization of the PEER Online platform and its PEER Reports.

  

Going Concern Uncertainty

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which contemplate continuation of the Company as a going concern. The Company has a limited operating history and its operations are subject to certain challenges, expenses, difficulties, delays, complications, risks and uncertainties frequently encountered in the operation of a business with a limited operating history. These risks include the ability to obtain adequate financing on a timely basis, if at all, the failure to develop or supply technology or services to meet the demands of the marketplace, the failure to attract and retain qualified personnel, competition within the industry, government regulation and the general strength of regional and national economies.

 

The Company’s continued operating losses and limited capital raise substantial doubt about its ability to continue as a going concern. The Company has limited cash resources for its operations and will need to raise additional funds to meet its obligations as they become due. As of March 31, 2016, we had an accumulated deficit of $66,186,900. For the six months ended March 31, 2016 and 2015, we had net losses from operations of $1,314,700 and $1,560,200 respectively. Net cash used in operating activities for the six months ended March 31, 2016 and 2015, were $1,339,900 and $1,343,700 respectively.

  

To date, the Company has financed its cash requirements primarily from debt and equity financings.  The Company will need to raise additional funds immediately to continue its operations and needs to raise substantial additional funds before the Company can increase demand for its PEER Online services. Until it can generate a sufficient amount of revenues to finance its cash requirements, which it may never do, the Company must continue to finance future cash needs primarily through public or private equity offerings, debt financings, borrowings or strategic collaborations. The Company’s liquidity and capital requirements depend on several factors, including the rate of market acceptance of its services, the future profitability of the Company, the rate of growth of the Company’s business and other factors described elsewhere in this Quarterly Report on Form 10-Q.  The Company continues to explore additional sources of capital, but there is substantial doubt as to whether any financing arrangement will be available in amounts and on terms acceptable to the Company to permit it to continue operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

   

Between September 22, 2014, and March 31, 2016, the Company issued secured convertible debt in the aggregate principal amount of $4,360,000. During the fiscal year ended September 30, 2015, the aggregate gross proceeds to the Company were $1,350,000 from the debt offering. Additionally, for the six months ended March 31, 2016, the Company issued secured convertible debt in the aggregate principal amount of $1,360,000. 

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.4.0.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and are in accordance with accounting principles generally accepted in the United States of America.

 

Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, doubtful accounts, intangible assets, income taxes, valuation of equity instruments, accrued liabilities, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

 

Cash

 

The Company deposits its cash with major financial institutions and may at times exceed the federally insured limit of $250,000.  At March 31, 2016 cash exceeds the federally insured limit by $190,200.  The Company believes that the risk of loss is minimal. To date, the Company has not experienced any losses related to cash deposits with financial institutions.

  

Derivative Liabilities

 

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of March 31, 2016, the Company’s only derivative financial instruments were a series of convertible notes having embedded derivative liabilities based on the conversion price of the note relative to the market price of a share of Common Stock on the valuation date. See Notes 3 & 4. 

 

Fair Value of Financial Instruments

 

ASC 825-10 defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

 

The Company also analyzes all financial instruments with features of both liabilities and equity under ASC 480-10, ASC 815-10 and ASC 815-40.

 

The Company adopted ASC 820-10 on January 1, 2008. ASC 820-10 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
  Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments; and
  Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

The Company used Level 3 inputs for its valuation methodology for the conversion option liability in determining the fair value using the Black-Scholes option-pricing model with the following assumption inputs:

 

   

March 31,

2016

   

September 30,

2015

 
Annual dividend yield     -       -  
Expected life (years)     1.75       0.5  
Risk-free interest rate     0.73 %     0.08 %
Expected volatility     225.53 %     48 %

 

    Carrying Value     Fair Value Measurements at  
    As of     March 31, 2016  
    March 31,     Using Fair Value Hierarchy  
    2016     Level 1     Level 2     Level 3  
Liabilities                                
Embedded derivative liabilities     1,441,700       -       -       1,441,700  
Total   $ 1,441,700     $ -     $ -     $ 1,441,700  

  

    Carrying Value     Fair Value Measurements at  
    As of     September 30, 2015  
    September 30,     Using Fair Value Hierarchy  
    2015     Level 1     Level 2     Level 3  
Liabilities                                
Embedded derivative liabilities     833,000       -       -       833,000  
Total   $ 833,000     $ -     $ -     $ 833,000  

 

For a roll-forward analysis of embedded derivative liabilities refer to Note 4. Derivative Liabilities

 

At March 31, 2016 and September 30, 2015, the Company had derivative liabilities of $1,441,700 and $833,000 respectively. For the six months ending March 31, 2016 and 2015, the Company had gains on the fair valuation of derivative liabilities of $798,200 and a $99,300 on fair valuation of derivative liabilities respectively.  As of March 31, 2016, the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 825-10.

 

Accounts Receivable

 

The Company estimates the collectability of customer receivables on an ongoing basis by reviewing past-due invoices and assessing the current creditworthiness of each customer.  Allowances are provided for specific receivables deemed to be at risk for collection which as of March 31, 2016 and September 30, 2015 were $1,200 and $1,200 respectively.

 

Furniture and Equipment

 

Furniture and Equipment, which are recorded at cost, consist of office furniture, equipment and purchased intellectual property which are depreciated, or amortized in the case of the intellectual property, over their estimated useful life on a straight-line basis.  The useful life of these assets is estimated to be between three and ten years.  Depreciation and amortization for the six months ended March 31, 2016 and 2015 was $2,700 and $4,400 respectively.  Accumulated depreciation and amortization at March 31, 2016 and September 30, 2015 was $74,900 and $82,600, respectively.

   

Long-Lived Assets

 

As required by ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), the Company reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. No impairment loss was recorded for the six months ended March 31, 2016 and 2015.

 

Intangible Assets

 

Costs for software developed for internal use are accounted for through the capitalization of those costs incurred in connection with developing or obtaining internal-use software. Capitalized costs for internal-use software are included in intangible assets in the consolidated balance sheet. Capitalized software development costs are amortized over three years. Costs incurred during the preliminary project along with post-implementation stages of internal use computer software development and costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability of development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility and estimated economic life. At March 31, 2016, the Company had $9,000 in capitalized software development of which $9,000 was capitalized during the three and six months ended March 31, 2016. The Company will begin amortizing the software over its estimated economic life once it has been placed into service. For the three and six months ended March 31, 2016, there has been no amortization expense for capitalized software development as it has not been placed into service.

 

Accounts Payable

 

Accounts payable consists of trade payables of which $405,700 and $476,900 are for legal services at March 31, 2016 and 2015 respectively.

 

Deferred Revenue

 

Deferred revenue represents revenue collected but not earned as of March 31, 2016. This represents a philanthropic grant for the payment of PEER Reports ordered for a clinical trial, which are otherwise not paid for by the military. These deferred revenue grant funds as of March 31, 2016 and 2015 are $45,900 for both periods.

 

Revenues

 

The Company recognizes revenue on services, being the delivery of PEER Reports to medical providers, in accordance with the Financial Accounting Standards Board (“FASB”) ASC No. 605, “Revenue Recognition.”  In all cases, revenue is recognized when we have persuasive evidence of an arrangement, a determinable fee, when collection is considered to be reasonable assured and the services are delivered.

 

Research and Development Expenses

 

The Company charges all research and development expenses to operations as incurred.

 

Advertising Expenses

 

The Company charges all advertising expenses to operations as incurred. For the six months ended March 31, 2016 and 2015 advertising expenses were $85,100 and $29,000 respectively.

 

Stock-Based Compensation

 

The Company has adopted ASC 718-20 and related interpretations which establish the accounting for equity instruments exchanged for employee services. Under ASC 718-20, share-based compensation cost to option grantee, being employees and directors, and is measured at the grant date based on the calculated fair value of the award (see Note 5 for further discussion on valuations). The expense is recognized over the option grantees’ requisite service period, generally the vesting period of the award.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method.  Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

As a result of the implementation of certain provisions of ASC 740, Income Taxes, which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes.  The Company adopted the provisions of ASC 740 and have analyzed filing positions in each of the federal and state jurisdictions where required to file income tax returns, as well as all open tax years in these jurisdictions.  We have identified the U.S. Federal and California as our "major" tax jurisdictions.  Generally, we remain subject to Internal Revenue Service examination of our 2010 through 2014 U.S. federal income tax returns, and remain subject to California Franchise Tax Board examination of our 2010 through 2014 California Franchise Tax Returns.  However, we have certain tax attribute carryforwards which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.

 

We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position.  Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.  In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740.  Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes.

  

Comprehensive Income (Loss)

 

ASC 220-10 requires disclosure of all components of comprehensive income (loss) on an annual and interim basis.  Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.  The Company’s comprehensive income (loss) is the same as its reported net income (loss) for the six months ended March 31, 2016 and 2015.

 

Earnings (Loss) per Share

  

Basic earnings (loss) per share are computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised and converted into Common Stock.

  

Recent Accounting Pronouncements

 

Apart from the below-mentioned recent accounting pronouncements, there are no new accounting pronouncements that are currently applicable to the Company.

 

In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03 is to simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this Update. The amendments in this ASU are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of the standard update to have a material impact on its consolidated financial position or results of operations. 

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.4.0.3
CONVERTIBLE DEBT AND EQUITY FINANCINGS
6 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
CONVERTIBLE DEBT AND EQUITY FINANCINGS
  3. CONVERTIBLE DEBT AND EQUITY FINANCINGS

 

Between September 22, 2014, and July 20, 2015, the Company entered into a Note Purchase Agreement (the “Original Note Purchase Agreement”) in connection with a bridge financing, with nine accredited investors, including lead investor RSJ Private Equity investiční fond s proměnným základním kapitálem (“RSJ PE”). Pursuant to the Original Note Purchase Agreement, the Company issued fifteen secured convertible promissory notes (each, a “September 2014 Note”) in the aggregate principal amount of $2.29 million. Of this amount, RSJ PE purchased a September 2014 Note for $750,000. The September 2014 Notes were also purchased by the following affiliates of the Company or entities under their control: RSJ PE, of which Michal Votruba is a director, purchased a September 2014 Note for $750,000, the Company’s director, John Pappajohn, purchased three September 2014 Notes for $400,000; the Follman Family Trust of which Robert Follman, a director of the Company, is a trustee, purchased a September 2014 Note for $100,000; The Tierney Family Trust, which is a greater than 5% stockholder of the Company, purchased five September 2014 Notes for $540,000, of which Thomas Tierney, a former director and Chairman of the Board of the Company (the “Board”), is a trustee; and Oman Ventures, of which Mark Oman, a greater than 5% stockholder of the Company, is the President, purchased a September 2014 Note for $200,000.  Michal Votruba joined our Board on July 30, 2015

 

The Original Note Purchase Agreement provided for the issuance and sale of September 2014 Notes in the aggregate principal amount of up to $2.5 million, in one or more closings to occur over a six-month period beginning September 22, 2014. The Original Note Purchase Agreement also provided that the Company and the holders of the September 2014 Notes enter into a registration rights agreement covering the registration of the resale of the shares of the Common Stock underlying the September 2014 Notes.

 

On April 14, 2015, the Company entered into Amendment No. 1 to the Original Note Purchase Agreement with the majority of the noteholders in principal, dated as of April 14, 2015 (“Amendment No. 1”), pursuant to which: (i) the aggregate principal amount of notes provided for issuance was increased by $0.5 million to a total of $3.0 million, and (ii) the period to raise the $3.0 million was extended to September 30, 2015. The Company subsequently amended and restated the Original Note Purchase Agreement solely to update for the changes made pursuant to Amendment No. 1 (such amended and restated agreement, together with the Original Note Purchase Agreement, the “Note Purchase Agreement”).

 

On September 14, 2015, the Company entered into an Omnibus Amendment (the “Omnibus Amendment”) to the Note Purchase Agreement and the notes purchased and sold pursuant thereto, with the majority of the noteholders to fix the conversion price of all notes at $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock) (the “Fixed Conversion Price”) (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price.

 

Subsequently thereto, on September 14, 15 and 24, 2015, the Company entered into a Note Purchase Agreement, as amended by the Omnibus Amendment, with each of six accredited investors, in connection with a bridge financing. Pursuant to these Note Purchase Agreements, the Company issued an aggregate principal amount of $710,000 of secured convertible promissory notes (collectively, the “September 2015 Notes,” and together with the September 2014 Notes all other notes purchased and sold pursuant to the Note Purchase Agreement, the “Notes”), which amount also represents the gross proceeds to the Company from the September 2015 Notes. Four of the six September 2015 Notes were purchased by affiliates of the Company, or an entity under such affiliate’s control, as follows: (i) Dr. Robin Smith, Chairman of the Board, purchased a Note for $60,000; (ii) the Follman Family Trust purchased a Note for $150,000; (iii) John Pappajohn purchased a Note for $100,000 and (iv) RSJ PE, purchased a Note for $350,000.

 

  Through December 23, 2015, and prior to further amendments to the Notes, all of the Notes were scheduled to mature on March 21, 2016, (subject to earlier conversion or prepayment), and earned interest at a rate of 5% per annum with interest payable at maturity. The Notes could not be prepaid without the prior written consent of the holder of such Note. The Notes were secured by a security interest in the Company’s intellectual property, as detailed in a security agreement. Upon a change of control of the Company, the holder of a Note had the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

 

On December 23, 2015, the Company entered into a Second Amended and Restated Note and Warrant Purchase Agreement (which further amended and restated the Note Purchase Agreement, as modified by the Omnibus Amendment) (the "Second Amended Note & Warrant Agreement") with each of 16 accredited investors, pursuant to which (i) the aggregate principal amount of Notes available for issuance was increased from $3.0 million to up to $6.0 million, (ii) the maturity date of the Notes outstanding prior to such amendment was extended from March 21, 2016 to December 31, 2017; (iii) the time during which Notes may be issued was extended and (iv) certain warrants were issued to holders of both previously issued and Notes issued under the Second Amended Note & Warrant Agreement.

 

Pursuant to the Second Amended Note & Warrant Agreement, on December 23 and December 28, 2015, the Company issued to the two purchasers thereof (i) an aggregate principal amount of $1,000,000 of secured convertible promissory notes (each, a "December 2015 Note"), which amount also represents the gross proceeds to the Company from the December 2015 Notes, and (ii) a warrant to each holder of December 2015 Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their December 2015 Note (each, a "Note Warrant"). Each Note Warrant is exercisable, in whole or in part, during the period beginning on the date of its issuance, and ending on the earlier of (i) December 31, 2020 and (ii) the date that is forty-five (45) days following the date on which the daily closing price of shares of the Company's Common Stock quoted on the OTCQB Venture Marketplace (or other bulletin board or exchange on which the Company's Common Stock is traded or listed) exceeds $0.25 for at least ten (10) consecutive trading days. In connection therewith, the Company will promptly notify the Note Warrant holders in the event that the daily closing price of the Company's shares of Common Stock so exceeds $0.25 for at least ten (10) consecutive trading days. Both December 2015 Notes and Note Warrants were purchased by affiliates of the Company, or an entity under such affiliate’s control, as follows: (i) on December 23, 2015, John Pappajohn, a member of the Board, purchased a December 2015 Note for $250,000 and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock; and (ii) on December 28, 2015, RSJ PE, of which, Michal Votruba, a member of the Board, is the Director for Life Sciences for the RSJ/Gradus Fund, purchased a December 2015 Note for $750,000 and was issued a Note Warrant to purchase 15,000,000 shares of Common Stock.

 

Between February 23, 2016 and March 31, 2016, the Company issued to the three accredited investor purchasers thereof (i) an aggregate principal amount of $360,000 in Notes and (ii) and a warrant to each holder of such Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their respective Note (each, also a "Note Warrant"). A total of 7,200,000 shares of Common Stock in the aggregate underlie these Note Warrants. Two of the purchasers were affiliates of the Company as follows: (i) Geoffrey E. Harris, a member of the Board, purchased a Note on February 23, 2016, for $10,000 and was issued a Note Warrant to purchase 200,000 shares of Common Stock and; (ii) John Pappajohn, a member of the Board, purchased a 2015 Note on March 31, 2016, for $250,000, and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock.

 

The table below provides additional detail regarding the Notes as of March 31, 2016, with respect to the carrying value and discount on the Balance Sheet.

  

        As of March 31, 2016  
Note Type and Investor   Due Date   Balance     Discount    

Carrying

Value

 

Senior Secured 5% Notes Convertible at $0.05

(the “Notes”)

      ($)     ($)     ($)  
 Related Parties:                            
RSJ Private Equity   12/31/2017   $ 1,850,000     $ (211,100 )   $ 1,638,900  
John Pappajohn   12/31/2017     800,000       (147,300 )     652,700  
Tierney Family Trust   12/31/2017     540,000       -       540,000  
Follman Family Trust   12/31/2017     250,000       -       250,000  
Oman Ventures   12/31/2017     200,000       -       200,000  
Robin L. Smith   12/31/2017     60,000       -       60,000  
Geoffrey E. Harris   12/31/2017     10,000       (4,700 )     5,300  
Total Related Parties         3,710,000       (363,100 )     3,346,900  
Others:                            
11 Accredited Investors   12/31/2017     650,000       (30,700 )     619,300  
Total Secured Convertible Promissory Notes       $ 4,360,000     $ (393,800 )   $ 3,966,200  

 

Also on December 23, 2015, in consideration for the agreement to extend the maturity date of the Notes, the Company issued to holders of all Notes outstanding prior to the date of the Second Amended Note & Warrant Agreement, warrants to purchase an aggregate of 60,000,000 shares of Common Stock (the "Extension Warrants", together with the Note Warrants, the "Warrants"). All Warrants have identical terms. Each such holder was issued an Extension Warrant to purchase Common Stock in an amount equal to 100% of the shares underlying each such holder's previously outstanding Notes. For additional detail refer to the warrant section of Note 5. Stockholders’ Deficit.

 

Pursuant to the Second Amended and Restated Note and Warrant Agreement, all Notes: (i) mature on December 31, 2017 (subject to earlier conversion or prepayment), (ii) earn interest at a rate of 5% per annum with interest payable at maturity, and (iii) are convertible into shares of Common Stock (a) automatically upon the closing of a qualified offering of no less than $5 million, at a conversion price of $0.05 per share or (b) voluntarily, within 15 days prior to maturity, at a conversion price of $0.05 per share. No Note may be prepaid without the prior written consent of the holder of such Note. The Notes are secured by a security interest in the Company's intellectual property, as detailed in the amended and restated security agreement. Upon a change of control of the Company (as described in the Notes), the holder of a Note will have the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.4.0.3
DERIVATIVE LIABILITIES
6 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITIES
  4. DERIVATIVE LIABILITIES

 

At September 30, 2015 the Notes totaled $3.0 million and the derivative liability value was determined to be $833,000. For the fiscal year ended September 30, 2015, gains on derivatives liabilities totaled $162,800.

 

On December 23, 2015, the Company entered into the Second Amended Note & Warrant Agreement, with each of 16 accredited investors, pursuant to which (i) the aggregate principal amount of Notes available for issuance was increased from $3.0 million to up to $6.0 million, (ii) the maturity date of currently outstanding Notes was extended from March 21, 2016 to December 31, 2017; (iii) the time during which Notes may be issued was extended and (iv) certain warrants were issued to holders of both previously issued and newly issued Notes. Consequently, the existing notes totaling $3 million, plus $121,900 of accrued interest thereon, for an aggregate total debt of $3,121,900 was revalued on December 23, 2015, and on the prior trading day, December 22, 2015, to determine the impact on derivative valuation. On December 22, 2015, the derivative liability of the aggregate debt was determined to be $60,200, which resulted in a write down of $772,800 from the derivative liability balance of $833,000 at September 30, 2015, which resulted in a Gain on Derivative Liabilities of $772,800.

 

On December 23, 2015, all the Notes were revalued with the maturity date extended to December 31, 2017. The derivative liability value was determined to be $1,022,400 and the offset was booked to other income as a Loss on Extinguishment of Debt, adjustment amount of $962,300.

 

Pursuant to the Second Amended Note & Warrant Agreement, on December 23 and December 28, 2015, the Company issued to the two purchasers of December 2015 Notes in the aggregate principal amount of $1,000,000 of secured convertible promissory notes. Between February 23, 2016 and March 31, 2016, the Company issues three additional Notes to three purchasers in the aggregate principal amount of $360,000 of secured convertible promissory notes.

 

Consequently, on March 31, 2016, notes in the aggregate principal amount of $4.36 million were revalued, and the derivative liability value was determined to be $1,441,700; the offset was booked to other income as a Gain on Derivative Liability of $786,900.

 

The range of Black-Scholes option-pricing model assumption inputs for all the valuation dates are in the table below:

 

   

September 30, 2015

through to

March 31, 2016

Low

   

September 30, 2015

through to

March 31, 2016

High

 
Annual dividend yield            
Expected life (years)     0.2       2.00  
Risk-free interest rate     0.08 %     1.06 %
Expected volatility     47.83 %     225.32 %

 

The following tables include a roll-forward of liabilities classified within Levels 1, 2 and 3: 

 

    Six Months Ended March 31, 2016  
    Level 1     Level 2     Level 3  
                   
Stock warrant and other derivative liabilities at September 30, 2015   $ -     $ -     $ 833,000  
$3M of convertible debt prior to amendment     -       -       (772,800 )
$3M of convertible debt as amended     -       -       962,300  
Issuance of warrants and other derivatives     -       -       444,600  
Change in fair value     -       -       (25,400 )
Stock warrant and other derivative liabilities at March 31, 2016   $ -     $ -     $ 1,441,700  

 

    Six Months Ended March 31, 2015  
    Level 1     Level 2     Level 3  
                   
Stock warrant and other derivative liabilities at September 30, 2014   $ -     $ -     $ 153,100  
Change in fair value     -       -       (67,300 )
Stock warrant and other derivative liabilities at March 31, 2015   $ -     $ -     $ 85,800  

 

The net changes in Derivative Liabilities for transactions which were booked to other income resulted in a net gain on derivative liabilities of $798,200 and $67,300 for the six months ended March 31, 2016 and 2015 respectively.

 

The net changes in Extinguishment of Debt for transactions which were booked to other income resulted in a net loss on extinguishment of debt of $2,337,400 for the six months ended March 31, 2016. For the same period in 2015 we had no similar expenses.

 

As of March 31, 2016 and September 30, 2015 we had derivative liabilities of $1,441,700 and $833,000 respectively.

XML 21 R11.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT
6 Months Ended
Mar. 31, 2016
Stockholders' Equity Note [Abstract]  
STOCKHOLDERS' DEFICIT
  5. STOCKHOLDERS’ DEFICIT

 

Common and Preferred Stock

  

At the Company’s annual stockholders meeting held on October 28, 2015, stockholders approved to amend the Company’s Articles of Incorporation to increase the number of shares of Common Stock authorized for issuance from 180,000,000 to 500,000,000 shares.

 

As of March 31, 2016, the Company is authorized to issue 515,000,000 shares of stock, of which 500,000,000 are Common Stock; the remaining 15,000,000 shares, with a par value of $0.001 per shares are blank-check preferred stock which the Board is expressly authorized to issue without stockholder approval, for one or more series of preferred stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers, if any, of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of preferred stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.

 

As of March 31, 2016, 102,717,409 shares of Common Stock were issued and outstanding. No shares of preferred stock were issued or outstanding.

 

On August 20, 2015, the Board approved an award of 750,000 shares of the Company's restricted Common Stock to Dr. Smith in connection with her appointment as Chairman of the Company's Board. These shares, which are fully vested, were valued at $0.055 per share, the closing price of the shares on the day of grant, and were valued in aggregate at $41,250. The issuance of the shares was processed on October 30, 2015.

 

On January 15, 2016, the company engaged Dian Griesel International (DGI) for a 12 month long consulting agreement to provide public and investor relations services. The fee for the services is $5,000 per month, plus out-of-pocket expenses. As an origination fee for the agreement, the Board approved the issuance of 300,000 shares of common stock to Ms. Griesel on January 15, 2016. The aggregate value of these shares on the date of grant was $6,900.

 

Stock-Option Plans

 

On August 3, 2006, CNS California adopted the CNS California 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan provides for the issuance of awards in the form of restricted shares, stock options (which may constitute incentive stock options (ISO) or non-statutory stock options (NSO), stock appreciation rights and stock unit grants to eligible employees, directors and consultants and is administered by the Board. A total of 667,667 shares of stock were ultimately reserved for issuance under the 2006 Plan. As of March 31, 2016, 70,825 options were exercised and there were 501,924 options and 6,132 restricted shares outstanding under the amended 2006 Plan with a residual 87,786 shares which will not be issued as the 2006 Plan has been frozen. The outstanding options have exercise prices to purchase shares of Common Stock ranging from $3.60 to $32.70.

 

On March 22, 2012, our Board approved the MYnd Analytics, Inc. 2012 Omnibus Incentive Compensation Plan (the “2012 Plan”), reserved 333,334 shares of stock for issuance and on December 10, 2012, the Board approved the amendment of the 2012 Plan to increase the shares authorized for issuance from 333,334 shares to 5,500,000 shares. On March 26, 2013, the Board further approved the amendment of the 2012 Plan to increase the shares authorized for issuance from 5,500,000 shares to 15,000,000 shares. The 2012 Plan, as amended, was approved by our stockholders at the 2013 annual meeting held on May 23, 2013.

 

On January 8, 2015, the Board granted an option to purchase 250,000 shares of its Common Stock pursuant to the 2012 Plan, at an exercise price of $0.25 per share to a consultant. The option vesting is contingent upon the achievement of agreed upon goals.

 

On August 20, 2015, the Board approved an award of options to purchase 250,000 shares of the Company’s common stock for each of the Company's directors, for an aggregate grant of 1,750,000 options. The options are exercisable at a price per share of $0.055, the closing price of the Company's common stock on the date of grant, and will vest pro-rata over 36 months.

 

 As of March 31, 2016, under the 2012 Plan as amended, options to purchase 13,728,087 shares of Common Stock and 750,000 restricted shares remain outstanding. No options have been exercised under the 2012 Plan and 521,913 shares remain available for issuance.

 

Stock-based compensation expenses are generally recognized over the employees’ or service provider’s requisite service period, generally the vesting period of the award. Stock-based compensation expense included in the accompanying statements of operations for the three and six months ended March 31, 2016 and 2015 is as follows:   

 

   

For the three months ended

March 31,

 
    2016     2015  
Research     10,400       10,400  
Product Development     7,700       15,500  
Sales and marketing     14,900       53,400  
General and administrative     7,200       20,500  
Total   $ 40,200     $ 99,800  

 

 

   

For the six months ended

March 31,

 
    2016     2015  
Research     20,800       20,800  
Product Development     16,800       34,000  
Sales and marketing     14,900       63,300  
General and administrative     18,400       44,100  
Total   $ 70,900     $ 162,200  

 

Total unrecognized stock-based compensation as of March 31, 2016, amounted to $145,443.

 

A summary of stock option activity is as follows: 

 

   

Number of 

Shares

   

Weighted

Average 

Exercise 

Price

 
Outstanding at September 30, 2015     14,230,011     $ 0.75  
Granted     -          
Exercised     -       -  
Forfeited     -          
Outstanding at March 31, 2016     14,230,011     $ 0.75  

 

Following is a summary of the status of options outstanding at March 31, 2016:

 

 

Exercise

Price ($)

   

Number

of Shares

   

Expiration

Date

 

Weighted Average

Exercise Price ($)

 
                   
$ 0.055       1,750,000     08/2025   $ 0.055  
  0.04718       8,795,308     12/2022 – 01/2023     0.04718  
  0.25       2,715,109     03/2023 – 01/2025     0.25  
  0.26       425,000     07/2024     0.26  
  3.00       42,670     03/2022     3.00  
  3.60       28,648     08/2016     3.60  
  3.96       32,928     08/2016     3.96  
  9.00       4,525     11/2016     9.00  
  12.00       28,535     03/2019 – 07/2020     12.00  
  14.10       10,000     03/2021     14.10  
  15.30       1,373     09/2018     15.30  
  16.50       262,441     03/2020     16.50  
  17.70       953     08/2016     17.70  
  24.00       4,667     12/2017     24.00  
  26.70       32,297     09/2017     26.70  
  28.80       11,767     04/2018     28.80  
  32.70       83,790     08/2017     32.70  
$ Total       14,230,011     Average   $ 0.75  

  

Warrants to Purchase Common Stock

 

 The warrant activity for the period starting October 1, 2015, through March 31, 2016, is described as follows:

 

   

Number of 

Shares

   

Weighted

Average 

Exercise Price

 
Outstanding at September 30, 2015     781,524     $ 0.53  
Granted     87,200,000       0.05  
Exercised     -       -  
Expired     (35,002 )     1.00  
Outstanding at March 31, 2016     87,946,522     $ 0.05  

 

 

Following is a summary of the status of warrants outstanding at March 31, 2016:

 

Exercise

Price

   

Number

of Shares

   

Expiration

Date

 

Weighted Average

Exercise Price

 
                         
$ 0.04718       38,152     03/2018   $ 0.04718  
  0.05       27,200,000 (1)   12/31/2020     0.05  
  0.05       60,000,000 (2)   12/31/2020     0.05  
  0.25       332,200     04/2016 – 07/2017     0.25  
  0.275       324,000     06/2018 – 03/2019     0.275  
  1.00       32,168     10/2015 – 01/2017     1.00  
  7.50       3,334     05/2016     7.50  
$ 9.00       16,668     07/2017     9.00  
  Total       87,946,522         $ 0.05  

 

(1) Between December 23, 2015, and March 31, 2016 the Company entered into a Second Amended Note and Warrant Purchase Agreement pursuant to which the Company issued five Notes (including the December 2015 Notes) to the four purchasers for an aggregate principal amount of $1,360,000 and issued five Note Warrants to purchase an aggregate of 27,200,000 shares of the Company's Common Stock. The Note Warrants were issued to purchasers of Notes in an amount equal to 100% of the shares underlying their December 2015 Notes. Each Note Warrant is exercisable, in whole or in part, during the period beginning on the date of its issuance, and ending on the earlier of (i) December 31, 2020 and (ii) the date that is forty-five (45) days following the date on which the daily closing price of shares of the Company's Common Stock quoted on the OTCQB Venture Marketplace (or other bulletin board or exchange on which the Company's Common Stock is traded or listed) exceeds $0.25 for at least ten (10) consecutive trading days. In connection therewith, the Company will promptly notify the Note Warrant holders in the event that the daily closing price of the Company's shares of Common Stock so exceeds $0.25 for at least ten (10) consecutive trading days. 2 million Note Warrants were issued to one accredited investor and 25.2 million Note Warrants were issued to Directors; for further detail refer to Note 6. Related Party Transactions.

 

(2) On December 23, 2015, in consideration for the agreement to extend the maturity date of the Notes, the Company issued to holders of all Notes outstanding prior to the date of the Second Amended Note & Warrant Agreement, Extension Warrants to purchase an aggregate of 60,000,000 shares of Common Stock. Each such holder was issued an Extension Warrant to purchase Common Stock in an amount equal to 100% of the shares underlying each such holder's previously outstanding Notes. 11 million Extension Warrants were issued to 10 accredited investors and 49 million Extension Warrants were issued to Directors and Affiliates; for further detail refer to Note 6. Related Party Transactions.

 

On December 23, 2015, we valued the Extension Warrants to purchase 60 million shares of Common Stock using the Black-Scholes model and determined their value to be $1,196,000, which was booked as an Extinguishment of Debt expense.

 

 The range of Black-Scholes option-pricing model assumption inputs for the six months ended March 31, 2016, were as follows: 

 

    December 23, 2015
through
March 31,2016
 
Annual dividend yield     -  
Expected life (years)     5.00  
Risk-free interest rate     1.21% ~ 1.74 %  
Expected volatility     255.50% ~ 272.56 %  

 

At March 31, 2016, there were warrants outstanding to purchase 87,946,522 shares of the Company’s Common Stock. The exercise prices of the outstanding warrants range from $0.04718 to $9.00 with a weighted average exercise price of $0.05. The warrants expire at various times starting 2016 through 2020.

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.4.0.3
RELATED PARTY TRANSACTIONS
6 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS
  6. RELATED PARTY TRANSACTIONS

 

Termination of Governance Agreements

 

On March 28, 2015, the Company entered into a separate termination agreement with each of Equity Dynamics and SAIL, in each case to immediately terminate the respective November 28, 2012 governance agreement (collectively, the “Governance Agreements”) that the Company had entered into with each of Equity Dynamics and SAIL (collectively, the “Termination Agreements”). Equity Dynamics is an entity owned by John Pappajohn, a director of the Company, and SAIL is one of the Company’s principal stockholders of which former director, Walter Schindler, was the managing partner. Pursuant to the Governance Agreements, the Company had agreed, subject to providing required notice to stockholders, to appoint four individuals nominated by Equity Dynamics and three individuals nominated by SAIL to the Company’s Board, and to create vacancies for that purpose, if necessary. In addition, at each meeting of stockholders of the Company at which directors were nominated and elected, the Company had agreed to nominate for election the four designees of Equity Dynamics and the three designees of SAIL, and further had agreed to take all necessary action to support such election, and to oppose any challenges to such designees. The Governance Agreements also restricted the Company’s ability to increase the number of directors to more than seven without the consent of Equity Dynamics and SAIL. Pursuant to the Termination Agreements, the Governance Agreements were terminated in their entirety as of March 28, 2015, and are of no further force or effect.

  

Note Purchase Agreement, Notes and Omnibus Amendment and Second Amendment Note & Warrant Agreement

 

Between September 22, 2014, and July 20, 2015, the Company entered into a the Original Note Purchase Agreement in connection with a bridge financing, with nine accredited investors, including lead investor RSJ PE. Pursuant to the Original Note Purchase Agreement, the Company issued fifteen September 2014 Note in the aggregate principal amount of $2.27 million. Of this amount, RSJ PE purchased a September 2014 Note for $750,000. The September 2014 Notes were also purchased by the following affiliates of the Company or entities under their control: RSJ PE, of which Michal Votruba is a director, which purchased a September 2014 Note for $750,000; the Company’s director, John Pappajohn, purchased three September 2014 Notes for $400,000; the Follman Family Trust of which Robert Follman, a director of the Company, is a trustee, purchased a September 2014 Note for $100,000; The Tierney Family Trust, which is a greater than 5% stockholder of the Company, purchased four September 2014 Notes for $540,000, of which Thomas Tierney, a former director and Chairman of the Board, is a trustee; and Oman Ventures, of which Mark Oman, a greater than 5% stockholder of the Company, is the President, purchased a September 2014 Note for $200,000.  Michal Votruba joined our Board on July 30, 2015.

 

For details of the Original Note Purchase Agreement, Amendment No.1 on April 14, 2015, the Omnibus Amendment on September 14, 2015 and subsequent Second Amended Note & Warrant Agreement on December 23, 2015 please refer to Note 3. Convertible Debt and Equity Financing.

 

On September 14, 2015, the Company entered into an Omnibus Amendment and subsequently thereto, on September 14, 15 and 24, 2015, the Company entered into a Note Purchase Agreement, as amended by the Omnibus Amendment, with each of six accredited investors, in connection with a bridge financing. Pursuant to these Note Purchase Agreements, the Company issued an aggregate principal amount of $710,000 of secured convertible September 2015 Notes, which amount also represents the gross proceeds to the Company from the September 2015 Notes. Four of the six September 2015 Notes were purchased by affiliates of the Company, or an entity under such affiliate’s control, as follows: (i) Dr. Robin Smith, Chairman of the Board, purchased a Note for $60,000; (ii) the Follman Family Trust, of which, Robert Follman, a director of the Company, is a trustee, purchased a Note for $150,000; (iii) John Pappajohn, a director of the Company, purchased a Note for $100,000 and (iv) RSJ PE, purchased a Note for $350,000.

 

On December 23, 2015, the Company entered into a Second Amended Note & Warrant Agreement pursuant to which, on December 23 and December 28, 2015, the Company issued to the two purchasers thereof, who are both affiliates of the Company, (i) an aggregate principal amount of $1,000,000 of December 2015 Notes, which amount also represents the gross proceeds to the Company from the December 2015 Notes, and (ii) a Note Warrant issued to each holder of December 2015 Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their December 2015 Note and is exercisable at $0.05 per share. The affiliates who purchased the December 2015 Notes were as follows: (i) John Pappajohn, a director of the Company, purchased a Note for $250,000 and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock and (ii) RSJ PE, who purchased a Note for $750,000 and was issued a Note Warrant to purchase 15,000,000 shares of Common Stock.

 

During the three months ended March, 31, 2016, pursuant to the Second Amended Note & Warrant Agreement the Company issued to the three accredited investor purchasers thereof (i) an aggregate principal amount of $360,000 in Notes and (ii) and a Note Warrant to each holder of such Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their respective Note. A total of 7,200,000 shares of Common Stock in the aggregate underlie these Note. Two of the purchasers were affiliates of the Company as follows: (i) Geoffrey E. Harris, a member of the Board, purchased a Note on February 23, 2016, for $10,000 and was issued a Note Warrant to purchase 200,000 shares of Common Stock and; (ii) John Pappajohn, a member of the Board, purchased a 2015 Note on March 31, 2016, for $250,000, and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock.

 

Each Note Warrant is exercisable, in whole or in part, during the period beginning on the date of its issuance, and ending on the earlier of (i) December 31, 2020 and (ii) the date that is forty-five (45) days following the date on which the daily closing price of shares of the Company's Common Stock quoted on the OTCQB Venture Marketplace (or other bulletin board or exchange on which the Company's Common Stock is traded or listed) exceeds $0.25 for at least ten (10) consecutive trading days. In connection therewith, the Company will promptly notify the Note Warrant holders in the event that the daily closing price of the Company's shares of Common Stock so exceeds $0.25 for at least ten (10) consecutive trading days.

 

Also on December 23, 2015, in consideration for the agreement to extend the maturity date of the Notes, the Company issued to holders of all Notes outstanding prior to the date of the Second Amended Note & Warrant Agreement, Extension Warrants to purchase an aggregate of 60,000,000 shares of Common Stock. Each such holder was issued an Extension Warrant to purchase Common Stock in an amount equal to 100% of the shares underlying each such holder's previously outstanding Notes. Extension warrants were issued to affiliates as follows:

 

5-Year Extension Warrants with an non-cashless exercise price of

$0.05

 

Secured Convertible

Promissory Notes

   

Warrants to purchase

Shares of Common

Stock

 
             
RSJ Private Equity   $ 1,850,000       22,000,000  
Robin L. Smith     60,000       1,200,000  
John Pappajohn     550,000       6,000,000  
Tierney Family Trust     540,000       10,800,000  
Oman Ventures     200,000       4,000,000  
Follman Family Trust     250,000       5,000,000  
Total Secured Convertible Promissory Notes   $ 3,450,000       49,000,000  

 

Director and Officer Indemnification Agreement

 

On December 7, 2015, the Company entered into indemnification agreements with each of its Directors and Executive Officers. The agreements provide for, among other things: the indemnification of these Directors and Officers by the Company to the fullest extent permitted by the laws of the State of Delaware; the advancement to such persons by the Company of certain expenses; related procedures and presumptions of entitlement; and other related matters.

 

Transactions with John Pappajohn, Director

 

On September 22, 2014, March 18, 2015, June 2, 2015 and September 15, 2015, Mr. Pappajohn purchased four Notes for $200,000, $100,000, $100,000 and $100,000 respectively. Pursuant to the Omnibus Amendment, the Notes are convertible into shares of Common Stock at $0.055 per share: (i) automatically upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily within 15 days prior to maturity. 

 

On September 6, 2015, Mr. Pappajohn irrevocably assigned $200,000 in principal of his September 2014 Notes to four outside parties in the amount of $50,000 each.

 

On September 15, 2015, Mr. Pappajohn purchased a September 2015 Note for $100,000. The September 2015 Notes are convertible into share of Common Stock (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price, such that the conversion price of all notes will be $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock).

 

On December 23, 2015, and on March 31, 2016, Mr. Pappajohn purchased two Notes (including December 2015 Notes) for $250,000 each pursuant to the abovementioned Second Amended Note & Warrant Purchase Agreement. Additionally, in connection with the Second Amended Note & Warrant Purchase Agreement, Mr. Pappajohn was issued Warrants to purchase an aggregate of 16,000,000 shares of Common Stock at $0.05 per share, consisting of two Note Warrants to purchase in aggregate a total of 10,000,000 shares of Common Stock, and an Extension Warrant to purchase 6,000,000 shares of Common Stock.

 

Transactions with Robert J. Follman, Director

 

On October 19, 2012, an October 2012 Note in the aggregate principal amount of $200,000 was issued in exchange for cash to the Trust of Robert J. Follman and Carole A. Follman, dated August 14, 1979 (the “Follman Trust”), an accredited investor, of which Robert J. Follman is a trustee. As of February 25, 2013, Mr. Follman was elected as a Director of the Company. On June 14, 2013, the Follman Trust converted their October 2012 Note and interest thereon into 4,491,310 shares of Common Stock at a conversion price $0.04718 per share.

  

The Follman Trust made multiple additional investments pursuant to a series of subscription agreements all of which were the result of private placements of unregistered stock at $0.25 per share. All individual transactions were in tranches of $100,000 for the purchase of 400,000 shares and the Company received gross cash proceeds of $100,000 on each occasion. These transactions occurred on the following dates: August 16 and September 11 of 2013 and January 17, February 14 and July 8 of 2014. In aggregate the Follman Trust has purchased 2,000,000 shares at $0.25 per share for $500,000 gross cash proceeds to the Company.

  

On March 17, 2015 and September 15, 2015, the Follman Trust purchased Notes for $100,000 and $150,000, respectively. Pursuant to the Omnibus Amendment, these Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily, within 15 days prior to maturity.

 

Additionally, on December 23, 2015, in connection with the Second Amended Note & Warrant Purchase Agreement, the Follman Trust was issued an Extension Warrant to purchase 5,000,000 shares of Common Stock at $0.05 per share.

 

Transaction with Robin L. Smith, Chairman

 

On September 14, 2015, Dr. Smith, our Chairman of the Board, purchased a Note for $60,000. Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

 

Additionally, on December 23, 2015, in connection with the Second Amended Note & Warrant Purchase Agreement, Dr. Smith was issued an Extension Warrant to purchase 1,200,000 shares of Common Stock at $0.05 per share.

 

Transaction with Geoffrey E. Harris, Director and Chairman, Audit Committee

 

On February 23, 2016, Geoffrey E. Harris, purchased a Note for $10,000 pursuant to the Second Amended Note & Warrant Purchase Agreement and was issued a Note Warrant to purchase an aggregate of 200,000 shares of Common Stock at $0.05 per share.

 

Transactions with George Carpenter, President and Chief Executive Officer

 

On September 25, 2013, the Board approved a consulting agreement effective May 1, 2013, for marketing services provided by Decision Calculus Associates, an entity operated by Mr. Carpenter’s spouse, Jill Carpenter. For the period from May 1, 2013 through to March 25, 2015, we had paid $280,000 to Decision Calculus Associates (“DCA”). For the period from March through July of 2015, DCA was not engaged by the Company. Effective August 2015 DCA has been re-engaged at a fee of $10,000 per month. From August 2015 through March 31, 2016, DCA has been paid $70,000 with a further $10,000 balance due in accounts payable.

   

Transactions with the SAIL Capital Partners and SAIL Holdings

 

Mr. Schindler served as a Director between November 29, 2012 and June 11, 2015, and was the Managing Partner of SAIL Capital Partners, which was a greater than 5% stockholder of the Company, and is the general partner of all the SAIL entities except for SAIL Holding, LLC which is controlled directly by Mr. Schindler.

 

On January 5, 2015, the Company entered into a three-month long consulting engagement with Dr. Eric Warner, Managing Partner, Europe, Middle East & Africa, SAIL Capital Partners Ltd. The objectives of the engagement include the establishment of a revenue-generating licensing agreement in the United Kingdom (U.K.) and initiation a pilot study of our PEER Online technology. Dr. Warner has been paid $10,000 per month for a total of $30,000. On January 8, 2015, the Board granted Dr. Warner an option to purchase 250,000 shares of Common Stock with an exercise price of $0.25 per share; the option vesting is conditioned on the execution of a licensing agreement and a PEER Online pilot study. The fair value of the option, which was determined using the Black-Scholes model, was $28,300 and was expensed over the term of the engagement.

 

Transactions with Tierney Family Trust, Greater than 5% Stockholder

 

Mr. Tierney, who resigned from the Board on May 22, 2015, had served on the Board since February 2013, and had served as Chairman of the Board since March 2013. Mr. Tierney is a trustee of the Thomas T. and Elizabeth C. Tierney Family Trust (the “Tierney Family Trust”), which is a greater than 5% stockholder.

  

On September 22, 2014, January 8, 2015, March 17, 2015, June 3, 2015 and July 3, 2015 the Tierney Family Trust purchased five Notes for $200,000, $100,000, $115,000, $100,000 and $25,000, respectively, for an aggregate total of $540,000. Pursuant to the Omnibus Amendment, all such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

 

Additionally, on December 23, 2015, in connection with the Second Amended and Restated Note & Warrant Purchase Agreement, the Tierney Family Trust was issued an Extension Warrant to purchase 10,800,000 shares of Common Stock at $0.05 per share.

  

Transactions with Mark and Jill Oman, Greater than 5% Stockholder

 

On September 22, 2014, Oman Ventures LLC, of which Mr. Oman, a greater than 5% stockholder is the President, purchased a Note for $200,000. Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

 

Additionally, on December 23, 2015, in connection with the Second Amended and Restated Note & Warrant Purchase Agreement, Oman Ventures LLC was issued an Extension Warrant to purchase 4,000,000 shares of Common Stock at $0.05 per share.

 

Transactions with RSJ PE

 

Michal Votruba joined our Board on July 30, 2015. Mr. Votruba is a director of RSJ PE, which acted as the lead investor in the private placement financing of September 2014 Notes.

 

On September 26, 2014, and September 24, 2015, investor RSJ PE purchased a two Notes for $750,000 and $350,000 respectively. Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

 

On December 28, 2015, RSJ PE purchased a December 2015 Note for $750,000 pursuant to the abovementioned Second Amended Note & Warrant Purchase Agreement. Additionally, in connection with the Second Amended Note & Warrant Purchase Agreement, RSJ PE was issued Warrants to purchase an aggregate of 37,000,000 shares of Common Stock at $0.05 per share, consisting of a Note Warrant to purchase 15,000,000 shares of Common Stock and an Extension Warrant to purchase 22,000,000 shares of Common Stock.

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.4.0.3
LOSS PER SHARE
6 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
LOSS PER SHARE

7. LOSS PER SHARE

 

In accordance with ASC 260-10 (formerly SFAS 128, “Computation of Earnings Per Share”), basic net income (loss) per share is computed by dividing the net income (loss) to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period.  For the three and six months ended March 31, 2016 and 2015, the Company has excluded all common equivalent shares from the calculation of diluted net loss per share as such securities are anti-dilutive.

 

A summary of the net income (loss) and shares used to compute net income (loss) per share for the three months ended March 31, 2016 and 2015 is as follows: 

 

   

Three months ended

March 31,

 
    2016     2015  
Net Loss for computation of basic and diluted net loss per share:                
Net loss   $ (142,700 )   $ (696,300 )
Basic and Diluted net loss per share:                
Basic net loss per share   $ (0.00 )   $ (0.01 )
                 
Basic and Diluted weighted average shares outstanding     102,669,022       101,667,409  
                 
The weighted average of anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:                
Convertible debt     83,271,628       1,892,742  
Warrants     80,938,825       781,833  
Options     14,230,011       12,645,994  

 

   

Six months ended

March 31,

 
    2016     2015  
Net Loss for computation of basic and diluted net loss per share:                
Net loss   $ (3,594,000 )   $ (1,570,900 )
Basic and Diluted net loss per share:                
Basic net loss per share   $ (0.04 )   $ (0.02 )
                 
Basic and Diluted weighted average shares outstanding     102,543,215       101,667,409  
                 
The weighted average of anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:                
Convertible debt     73,234,048       1,771,371  
Warrants     43,892,108       871,027  
Options     14,230,011       12,531,746  
XML 24 R14.htm IDEA: XBRL DOCUMENT v3.4.0.3
COMMITMENTS AND CONTINGENT LIABILITIES
6 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENT LIABILITIES
8. COMMITMENTS AND CONTINGENT LIABILITIES

 

Litigation

 

From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the ordinary course of business. Other than as set forth below, the Company is not currently party to any legal proceedings, the adverse outcome of which, in the Company’s management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company’s results of operations or financial position.

 

Since June 2009, the Company has been involved in litigation against Leonard J. Brandt, a stockholder, former Director and the Company’s former Chief Executive Officer (“Brandt”) in the Delaware Chancery Court, the Supreme Court of the State of Delaware, the United States District Court for the Central District of California and the Superior Court for the State of California, Orange County. Other than current actions described below, the Company has prevailed in all actions or the matters have been dismissed.

 

On April 11, 2011, Brandt and his family business partnership Brandt Ventures, GP, filed an action in the Superior Court for the State of California, Orange County against the Company, one of its stockholders, SAIL Venture Partner, LP, and Mr. David Jones, a former member of the Board, alleging breach of a promissory note agreement entered into by Brandt Ventures, GP and the Company and alleging that Mr. Brandt was wrongfully terminated as Chief Executive Officer in April, 2009.  The Company was served with a summons and complaint in the action on July 19, 2011.

 

On November 1, 2011, Mr. Brandt and Brandt Ventures filed an amended complaint amending their claims and adding new claims against the same parties. On March 12, 2012, the court sustained demurrers to certain of the counts against each defendant. On March 22, 2012, the plaintiffs filed a second amended complaint modifying certain of their claims, but did not add new claims. On February 6, 2013, the plaintiffs moved for leave to amend the second amended complaint and file a third amended complaint. On March 6, 2013, the Court granted leave to amend, but awarded fees and costs for the defendants to again make dispositive motions. The third amended complaint adds a claim for breach of the promissory note and seeks to foreclose on the collateral securing the note obligation.  In addition, Mr. Brandt is seeking approximately $170,000 of severance and compensatory and punitive damages in connection with his termination.  In interrogatory responses served on January 26, 2013, Mr. Brandt for the first time identified that he seeks damages in connection with his termination exceeding $9,000,000.  Mr. Brandt has proffered no credible evidence to support damages in this amount, and the Company believes this claim for damages is without merit.  The plaintiffs also seek rescission of a $250,000 loan made by Brandt Ventures, GP to the Company which was converted into Common Stock in accordance with its terms and restitution of the loan amount.

 

A trial date had originally been set for May 2014. However, plaintiffs’ counsel requested a continuance until August 2014, to which the Company agreed.  On June 18, 2014, at plaintiffs’ counsel’s request, the Company entered into a Standstill and Tolling Agreement, whereby the parties agreed to seek a stay of the litigation and plaintiffs agreed to provide the Company with an executed dismissal of all the claims without prejudice, with the ability to re-file the third amended complaint, without change, on or before June 18, 2015.  The Company had the right to file the executed stipulation of dismissal if the Court lifted the stay.  On May 7, 2015, the parties agreed to continue the Standstill and Tolling Agreement untill May 6, 2016, on the same terms. On May 12, 2015, the Court agreed to stay the case for another six months.  On November 4, 2015 the Court lifted the stay, and set the case for trial on March 7, 2016.  On February 3, 2016, the Company filed the executed stipulation of dismissal, thereby ending the current action in Orange County. The parties recently entered into extensions of the Standstill and Tolling Agreement that permit Mr. Brandt to start a new action and re-file the third amended complaint, without change, on or before May 23, 2016.  The Company continues to believe that Mr. Brandt's allegations set forth in the third amended complaint, like the prior complaints, are without merit. The Company has not accrued any amounts related to this matter. The just-dismissed action was captioned Leonard J. Brandt and Brandt Ventures, GP v. CNS Response, Inc., Sail Venture Partners and David Jones, case no. 30-2011-00465655-CU-WT-CJC.

  

 The Company has expended substantial resources to pursue the defense of legal proceedings initiated by Mr. Brandt.  The Company does not know whether Mr. Brandt will institute additional claims against the Company and the defense of any such claims could involve the expenditure of additional resources by the Company.

 

Lease Commitments

 

The Company had its Headquarters and Neurometric Services business premises located at 85 Enterprise, Aliso Viejo, California 92656 from February 2010 through January 2016.  The Company relocated its new Headquarters and Neurometric Services business to 26522 La Alameda, Suite 290, Mission Viejo, CA 92691, which is 2,290 sqft in size. We signed a 24 month lease for our new location on January 22, 2016. The lease period commenced on February 1, 2016 and terminates on January 31, 2018. The rent for the first four months is $2,290 per month, which is abated by 50%; for months 5 through 12 the rent increases to $4,580 per month and for the final 12 months the rent will increase by 5% to $4,809 per month.

 

On February 2, 2016, we signed a 23.5 month lease for 1,092 sqft of office space to house our EEG testing center. The premises are located at 25201 Paseo De Alicia, Laguna Hills, CA 92653. The lease period commenced on February 15, 2016 and terminates on January 31, 2018. The rent for first half month of February was prorated at $928.20; for the next 11 months the rent is $1,856 per month, and for the remaining twelve months the rent will increase by 3% to $1,911 per month. The landlord abated the rent for March 2016.

 

The Company incurred rent expense from operations of $16,200 and $12,200 for the three months ended March 31, 2016 and 2015, respectively; and $28,400 and $24,400 for the six months ended March 31, 2016 and 2015, respectively.

 

On April 24, 2013, we entered into a financial lease to acquire additional EEG equipment costing $8,900.  The term of the lease is 36 months ending May 2016 with a monthly payment of $325. As of March 31, 2016 the remaining lease obligation is $600 all of which is due in fiscal year 2016.

 

On January 20, 2016, we entered into a financial lease to acquire Canon Copier costing $6,700.  The term of the lease is 60 months ending January 2021 with a monthly payment of $135. As of March 31, 2016 the remaining lease obligation is $7,800, of the remaining lease obligation is 2016 $1,600; with $1,200 for the years 2017-2020; 2021 $1,400.

 

    Payments due by period  
Contractual Obligations   Total    

Less than 

1 year

    1 to 3 years     3 to 5 years    

More than

5 years

 
                               
Operating Lease Obligations   $ 140,400     $ 75,100     $ 65,300     $ -     $ -  
Capital Lease Obligations     8,400       2,200       4,800       1,400       -  
Total   $ 148,800     $ 77,300     $ 70,100     $ 1,400     $ -  
XML 25 R15.htm IDEA: XBRL DOCUMENT v3.4.0.3
SUBSEQUENT EVENTS
6 Months Ended
Mar. 31, 2016
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS
9. SUBSEQUENT EVENTS

 

Events subsequent to March 31, 2016 have been evaluated through the date these financial statements were issued, to determine whether they should be disclosed to keep the financial statements from being misleading. The following events have occurred since March 31, 2016.

  

On April 5, 2016, the Board approved grants of the Company's Common Stock under the 2012 Plan, with immediate vesting, as follows: 1,000,000 shares to our Chairman of the Board, Dr. Robin Smith; 500,000 shares to our Director and Chairman of the Audit Committee, Geoffrey Harris; and 250,000 shares to each of our remaining five Directors.

 

Also on April 5, 2016, the Board granted 1,000,000 shares of the Company’s Common Stock under the 2012 Plan to each of George Carpenter, the Company's President and Chief Executive Officer, and Paul Buck, the Company's Chief Financial Officer. 50% of these shares vested on the date of grant with the remaining 50% vesting pro-rata over 12 months starting on the date of grant, respectively.

Lastly, on April 5, 2016 the Board granted options to purchase 1,450,000 shares of the Company’s Common Stock under the 2012 Plan to staff members and options to purchase 200,000 shares of the Company’s Common Stock to our consultant, DCA. These shares vest pro-rata over 12 months starting on the date of grant.

 

The abovementioned grants of shares and options to Board members, executive officers, staff and consultant are valued $0.0255 per share, which was the closing price on the OTC.QB of the Company’s Common Stock on April 5, 2016.

 

Subsequent to March 31, 2016, the Company issued multiple Notes and Note Warrants pursuant to the Second Amended Note and Warrant Purchase Agreement to affiliates of the Company as follows:

 

  On April 7, 2016, the Company issued to the Follman Trust, of which Robert Follman, a member of the Company’s Board, is a trustee: (i) a Note in the aggregate principal amount of $200,000, and (ii) a Note Warrant to purchase 4,000,000 shares of the Company’s Common stock at $0.05 per share.

  On April 11, 2016, the Company issued to John Pappajohn, a member of the Board: (i) a Note in the aggregate principal amount of $250,000, and (ii) a Note Warrant to purchase 5,000,000 shares of the Company’s Common stock at $0.05 per share.
  On April 21, 2016, the Company issued to Dr. Robin Smith, our Chairman of the Board: (i) a Note in the aggregate principal amount of $40,000, and (ii) a Note Warrant to purchase 800,000 shares of the Company’s Common stock at $0.05 per share.
  On May 4, 2016, the Company issued to George Carpenter, the Company’s CEO, and his wife Jill: (i) a Note in the aggregate principal amount of $50,000, and (ii) a Note Warrant to purchase 1,000,000 shares of the Company’s Common stock at $0.05 per share.

 

In aggregate, since March 31, 2016, the Company has issued Notes totaling $540,000, which also represents gross proceeds to the Company, and has issued Note Warrants to purchase 10,800,000 shares of the Company’s Common Stock at $0.05 per share.

XML 26 R16.htm IDEA: XBRL DOCUMENT v3.4.0.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and are in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, doubtful accounts, intangible assets, income taxes, valuation of equity instruments, accrued liabilities, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Cash

Cash

 

The Company deposits its cash with major financial institutions and may at times exceed the federally insured limit of $250,000.  At March 31, 2016 cash exceeds the federally insured limit by $190,200.  The Company believes that the risk of loss is minimal. To date, the Company has not experienced any losses related to cash deposits with financial institutions.

Derivative Liabilities

Derivative Liabilities

 

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of March 31, 2016, the Company’s only derivative financial instruments were a series of convertible notes having embedded derivative liabilities based on the conversion price of the note relative to the market price of a share of Common Stock on the valuation date. See Notes 3 & 4. 

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

ASC 825-10 defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

  

The Company also analyzes all financial instruments with features of both liabilities and equity under ASC 480-10, ASC 815-10 and ASC 815-40.

 

The Company adopted ASC 820-10 on January 1, 2008. ASC 820-10 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
  Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments; and
  Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

The Company used Level 3 inputs for its valuation methodology for the conversion option liability in determining the fair value using the Black-Scholes option-pricing model with the following assumption inputs:

 

   

March 31,

2016

   

September 30,

2015

 
Annual dividend yield     -       -  
Expected life (years)     1.75       0.5  
Risk-free interest rate     0.73 %     0.08 %
Expected volatility     225.53 %     48 %

 

    Carrying Value     Fair Value Measurements at  
    As of     March 31, 2016  
    March 31,     Using Fair Value Hierarchy  
    2016     Level 1     Level 2     Level 3  
Liabilities                                
Embedded derivative liabilities     1,441,700       -       -       1,441,700  
Total   $ 1,441,700     $ -     $ -     $ 1,441,700  

  

    Carrying Value     Fair Value Measurements at  
    As of     September 30, 2015  
    September 30,     Using Fair Value Hierarchy  
    2015     Level 1     Level 2     Level 3  
Liabilities                                
Embedded derivative liabilities     833,000       -       -       833,000  
Total   $ 833,000     $ -     $ -     $ 833,000  

 

For a roll-forward analysis of embedded derivative liabilities refer to Note 4. Derivative Liabilities

 

At March 31, 2016 and September 30, 2015, the Company had derivative liabilities of $1,441,700 and $833,000 respectively. For the six months ending March 31, 2016 and 2015, the Company had gains on the fair valuation of derivative liabilities of $798,200 and a $99,300 on fair valuation of derivative liabilities respectively.  As of March 31, 2016, the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 825-10.

Accounts Receivable

Accounts Receivable

 

The Company estimates the collectability of customer receivables on an ongoing basis by reviewing past-due invoices and assessing the current creditworthiness of each customer.  Allowances are provided for specific receivables deemed to be at risk for collection which as of March 31, 2016 and September 30, 2015 were $1,200 and $1,200 respectively.

Furniture and Equipment

Furniture and Equipment

 

Furniture and Equipment, which are recorded at cost, consist of office furniture, equipment and purchased intellectual property which are depreciated, or amortized in the case of the intellectual property, over their estimated useful life on a straight-line basis.  The useful life of these assets is estimated to be between three and ten years.  Depreciation and amortization for the six months ended March 31, 2016 and 2015 was $2,700 and $4,400 respectively.  Accumulated depreciation and amortization at March 31, 2016 and September 30, 2015 was $74,900 and $82,600, respectively.

Long-Lived Assets

Long-Lived Assets

 

As required by ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), the Company reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. No impairment loss was recorded for the six months ended March 31, 2016 and 2015.

Intangible Assets

Intangible Assets

 

Costs for software developed for internal use are accounted for through the capitalization of those costs incurred in connection with developing or obtaining internal-use software. Capitalized costs for internal-use software are included in intangible assets in the consolidated balance sheet. Capitalized software development costs are amortized over three years. Costs incurred during the preliminary project along with post-implementation stages of internal use computer software development and costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability of development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility and estimated economic life. At March 31, 2016, the Company had $9,000 in capitalized software development of which $9,000 was capitalized during the three and six months ended March 31, 2016. The Company will begin amortizing the software over its estimated economic life once it has been placed into service. For the three and six months ended March 31, 2016, there has been no amortization expense for capitalized software development as it has not been placed into service.

Accounts Payable

Accounts Payable

 

Accounts payable consists of trade payables of which $405,700 and $476,900 are for legal services at March 31, 2016 and 2015 respectively.

Deferred Revenue

Deferred Revenue

 

Deferred revenue represents revenue collected but not earned as of March 31, 2016. This represents a philanthropic grant for the payment of PEER Reports ordered for a clinical trial, which are otherwise not paid for by the military. These deferred revenue grant funds as of March 31, 2016 and 2015 are $45,900 for both periods.

Revenues

Revenues

 

The Company recognizes revenue on services, being the delivery of PEER Reports to medical providers, in accordance with the Financial Accounting Standards Board (“FASB”) ASC No. 605, “Revenue Recognition.”  In all cases, revenue is recognized when we have persuasive evidence of an arrangement, a determinable fee, when collection is considered to be reasonable assured and the services are delivered.

Research and Development Expenses

Research and Development Expenses

 

The Company charges all research and development expenses to operations as incurred.

Advertising Expenses

Advertising Expenses

 

The Company charges all advertising expenses to operations as incurred. For the six months ended March 31, 2016 and 2015 advertising expenses were $85,100 and $29,000 respectively.

Stock-Based Compensation

Stock-Based Compensation

 

The Company has adopted ASC 718-20 and related interpretations which establish the accounting for equity instruments exchanged for employee services. Under ASC 718-20, share-based compensation cost to option grantee, being employees and directors, and is measured at the grant date based on the calculated fair value of the award (see Note 5 for further discussion on valuations). The expense is recognized over the option grantees’ requisite service period, generally the vesting period of the award.

Income Taxes

Income Taxes

 

The Company accounts for income taxes under the asset and liability method.  Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

As a result of the implementation of certain provisions of ASC 740, Income Taxes, which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes.  The Company adopted the provisions of ASC 740 and have analyzed filing positions in each of the federal and state jurisdictions where required to file income tax returns, as well as all open tax years in these jurisdictions.  We have identified the U.S. Federal and California as our "major" tax jurisdictions.  Generally, we remain subject to Internal Revenue Service examination of our 2010 through 2014 U.S. federal income tax returns, and remain subject to California Franchise Tax Board examination of our 2010 through 2014 California Franchise Tax Returns.  However, we have certain tax attribute carryforwards which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.

 

We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position.  Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.  In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740.  Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

 

ASC 220-10 requires disclosure of all components of comprehensive income (loss) on an annual and interim basis.  Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.  The Company’s comprehensive income (loss) is the same as its reported net income (loss) for the six months ended March 31, 2016 and 2015.

Earnings (Loss) per Share

Earnings (Loss) per Share

  

Basic earnings (loss) per share are computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised and converted into Common Stock.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

Apart from the below-mentioned recent accounting pronouncements, there are no new accounting pronouncements that are currently applicable to the Company.

 

In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03 is to simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this Update. The amendments in this ASU are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of the standard update to have a material impact on its consolidated financial position or results of operations. 

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.4.0.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
6 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Schedule of fair value inputs liabilities

The Company used Level 3 inputs for its valuation methodology for the conversion option liability in determining the fair value using the Black-Scholes option-pricing model with the following assumption inputs:

 

   

March 31,

2016

   

September 30,

2015

 
Annual dividend yield     -       -  
Expected life (years)     1.75       0.5  
Risk-free interest rate     0.73 %     0.08 %
Expected volatility     225.53 %     48 %
Schedule of fair value measurements, recurring and nonrecurring
    Carrying Value     Fair Value Measurements at  
    As of     March 31, 2016  
    March 31,     Using Fair Value Hierarchy  
    2016     Level 1     Level 2     Level 3  
Liabilities                                
Embedded derivative liabilities     1,441,700       -       -       1,441,700  
Total   $ 1,441,700     $ -     $ -     $ 1,441,700  

  

    Carrying Value     Fair Value Measurements at  
    As of     September 30, 2015  
    September 30,     Using Fair Value Hierarchy  
    2015     Level 1     Level 2     Level 3  
Liabilities                                
Embedded derivative liabilities     833,000       -       -       833,000  
Total   $ 833,000     $ -     $ -     $ 833,000  
XML 28 R18.htm IDEA: XBRL DOCUMENT v3.4.0.3
CONVERTIBLE DEBT AND EQUITY FINANCINGS (Tables)
6 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Schedule of convertable debt

The table below provides additional detail regarding the Notes as of March 31, 2016, with respect to the carrying value and discount on the Balance Sheet.

 

        As of March 31, 2016  
Note Type and Investor   Due Date   Balance     Discount    

Carrying

Value

 

Senior Secured 5% Notes Convertible at $0.05

(the “Notes”)

      ($)     ($)     ($)  
 Related Parties:                            
RSJ Private Equity   12/31/2017   $ 1,850,000     $ (211,100 )   $ 1,638,900  
John Pappajohn   12/31/2017     800,000       (147,300 )     652,700  
Tierney Family Trust   12/31/2017     540,000       -       540,000  
Follman Family Trust   12/31/2017     250,000       -       250,000  
Oman Ventures   12/31/2017     200,000       -       200,000  
Robin L. Smith   12/31/2017     60,000       -       60,000  
Geoffrey E. Harris   12/31/2017     10,000       (4,700 )     5,300  
Total Related Parties         3,710,000       (363,100 )     3,346,900  
Others:                            
11 Accredited Investors   12/31/2017     650,000       (30,700 )     619,300  
Total Secured Convertible Promissory Notes       $ 4,360,000     $ (393,800 )   $ 3,966,200  
XML 29 R19.htm IDEA: XBRL DOCUMENT v3.4.0.3
DERIVATIVE LIABILITIES (Tables)
6 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of black-scholes option-pricing model assumption inputs

The range of Black-Scholes option-pricing model assumption inputs for all the valuation dates are in the table below:

 

   

September 30, 2015

through to

March 31, 2016

Low

   

September 30, 2015

through to

March 31, 2016

High

 
Annual dividend yield            
Expected life (years)     0.2       2.00  
Risk-free interest rate     0.08 %     1.06 %
Expected volatility     47.83 %     225.32 %
Schedule of changes in the derivative valuation

The following tables include a roll-forward of liabilities classified within Levels 1, 2 and 3: 

 

    Six Months Ended March 31, 2016  
    Level 1     Level 2     Level 3  
                   
Stock warrant and other derivative liabilities at September 30, 2015   $ -     $ -     $ 833,000  
$3M of convertible debt prior to amendment     -       -       (772,800 )
$3M of convertible debt as amended     -       -       962,300  
Issuance of warrants and other derivatives     -       -       444,600  
Change in fair value     -       -       (25,400 )
Stock warrant and other derivative liabilities at March 31, 2016   $ -     $ -     $ 1,441,700  

 

    Six Months Ended March 31, 2015  
    Level 1     Level 2     Level 3  
                   
Stock warrant and other derivative liabilities at September 30, 2014   $ -     $ -     $ 153,100  
Change in fair value     -       -       (67,300 )
Stock warrant and other derivative liabilities at March 31, 2015   $ -     $ -     $ 85,800  
XML 30 R20.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Tables)
6 Months Ended
Mar. 31, 2016
Stockholders' Equity Note [Abstract]  
Schedule of stock-based compensation expense

Stock-based compensation expense included in the accompanying statements of operations for the three and six months ended March 31, 2016 and 2015 is as follows:   

 

   

For the three months ended

March 31,

 
    2016     2015  
Research     10,400       10,400  
Product Development     7,700       15,500  
Sales and marketing     14,900       53,400  
General and administrative     7,200       20,500  
Total   $ 40,200     $ 99,800  

  

   

For the six months ended

March 31,

 
    2016     2015  
Research     20,800       20,800  
Product Development     16,800       34,000  
Sales and marketing     14,900       63,300  
General and administrative     18,400       44,100  
Total   $ 70,900     $ 162,200  
Schedule of stock option activity

A summary of stock option activity is as follows: 

 

   

Number of 

Shares

   

Weighted

Average 

Exercise 

Price

 
Outstanding at September 30, 2015     14,230,011     $ 0.75  
Granted     -          
Exercised     -       -  
Forfeited     -          
Outstanding at March 31, 2016     14,230,011     $ 0.75  
Schedule of the status of options outstanding

Following is a summary of the status of options outstanding at March 31, 2016:

  

Exercise

Price ($)

   

Number

of Shares

   

Expiration

Date

 

Weighted Average

Exercise Price ($)

 
                   
$ 0.055       1,750,000     08/2025   $ 0.055  
  0.04718       8,795,308     12/2022 – 01/2023     0.04718  
  0.25       2,715,109     03/2023 – 01/2025     0.25  
  0.26       425,000     07/2024     0.26  
  3.00       42,670     03/2022     3.00  
  3.60       28,648     08/2016     3.60  
  3.96       32,928     08/2016     3.96  
  9.00       4,525     11/2016     9.00  
  12.00       28,535     03/2019 – 07/2020     12.00  
  14.10       10,000     03/2021     14.10  
  15.30       1,373     09/2018     15.30  
  16.50       262,441     03/2020     16.50  
  17.70       953     08/2016     17.70  
  24.00       4,667     12/2017     24.00  
  26.70       32,297     09/2017     26.70  
  28.80       11,767     04/2018     28.80  
  32.70       83,790     08/2017     32.70  
$ Total       14,230,011     Average   $ 0.75  
Schedule of share-based compensation warrants

 The warrant activity for the period starting October 1, 2015, through March 31, 2016, is described as follows:

 

   

Number of 

Shares

   

Weighted

Average 

Exercise Price

 
Outstanding at September 30, 2015     781,524     $ 0.53  
Granted     87,200,000       0.05  
Exercised     -       -  
Expired     (35,002 )     1.00  
Outstanding at March 31, 2016     87,946,522     $ 0.05
Schedule of the status of warrants outstanding

Following is a summary of the status of warrants outstanding at March 31, 2016:

 

Exercise

Price

   

Number

of Shares

   

Expiration

Date

 

Weighted Average

Exercise Price

 
                         
$ 0.04718       38,152     03/2018   $ 0.04718  
  0.05       27,200,000 (1)   12/31/2020     0.05  
  0.05       60,000,000 (2)   12/31/2020     0.05  
  0.25       332,200     04/2016 – 07/2017     0.25  
  0.275       324,000     06/2018 – 03/2019     0.275  
  1.00       32,168     10/2015 – 01/2017     1.00  
  7.50       3,334     05/2016     7.50  
$ 9.00       16,668     07/2017     9.00  
  Total       87,946,522         $ 0.05  
Schedule of black-scholes option-pricing model assumption inputs

 The range of Black-Scholes option-pricing model assumption inputs for the six months ended March 31, 2016, were as follows: 

 

    December 23, 2015
through
March 31,2016
 
Annual dividend yield     -  
Expected life (years)     5.00  
Risk-free interest rate     1.21% ~ 1.74 %  
Expected volatility     255.50% ~ 272.56 %  
XML 31 R21.htm IDEA: XBRL DOCUMENT v3.4.0.3
RELATED PARTY TRANSACTIONS (Tables)
6 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Schedule of extension warrants issued to affiliates

Extension warrants were issued to affiliates as follows:

 

5-Year Extension Warrants with an non-cashless exercise price of

$0.05

 

Secured Convertible

Promissory Notes

   

Warrants to purchase

Shares of Common

Stock

 
             
RSJ Private Equity   $ 1,850,000       22,000,000  
Robin L. Smith     60,000       1,200,000  
John Pappajohn     550,000       6,000,000  
Tierney Family Trust     540,000       10,800,000  
Oman Ventures     200,000       4,000,000  
Follman Family Trust     250,000       5,000,000  
Total Secured Convertible Promissory Notes   $ 3,450,000       49,000,000  
XML 32 R22.htm IDEA: XBRL DOCUMENT v3.4.0.3
LOSS PER SHARE (Tables)
6 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Schedule of earnings per share

A summary of the net income (loss) and shares used to compute net income (loss) per share for the three months ended March 31, 2016 and 2015 is as follows: 

 

   

Three months ended

March 31,

 
    2016     2015  
Net Loss for computation of basic and diluted net loss per share:                
Net loss   $ (142,700 )   $ (696,300 )
Basic and Diluted net loss per share:                
Basic net loss per share   $ (0.00 )   $ (0.01 )
                 
Basic and Diluted weighted average shares outstanding     102,669,022       101,667,409  
                 
The weighted average of anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:                
Convertible debt     83,271,628       1,892,742  
Warrants     80,938,825       781,833  
Options     14,230,011       12,645,994  

 

   

Six months ended

March 31,

 
    2016     2015  
Net Loss for computation of basic and diluted net loss per share:                
Net loss   $ (3,594,000 )   $ (1,570,900 )
Basic and Diluted net loss per share:                
Basic net loss per share   $ (0.04 )   $ (0.02 )
                 
Basic and Diluted weighted average shares outstanding     102,543,215       101,667,409  
                 
The weighted average of anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:                
Convertible debt     73,234,048       1,771,371  
Warrants     43,892,108       871,027  
Options     14,230,011       12,531,746  
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.4.0.3
COMMITMENTS AND CONTINGENT LIABILITIES (Tables)
6 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Schedule of contractual obligations

As of March 31, 2016 the remaining lease obligation is $7,800, of the remaining lease obligation is 2016 $1,600; with $1,200 for the years 2017-2020; 2021 $1,400.

 

    Payments due by period  
Contractual Obligations   Total    

Less than 

1 year

    1 to 3 years     3 to 5 years    

More than

5 years

 
                               
Operating Lease Obligations   $ 140,400     $ 75,100     $ 65,300     $ -     $ -  
Capital Lease Obligations     8,400       2,200       4,800       1,400       -  
Total   $ 148,800     $ 77,300     $ 70,100     $ 1,400     $ -  
XML 34 R24.htm IDEA: XBRL DOCUMENT v3.4.0.3
NATURE OF OPERATIONS (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Sep. 30, 2015
Dec. 23, 2015
Accumulated deficit $ (66,186,900)   $ (66,186,900)   $ (62,592,900)  
Net loss from operations (690,000) $ (780,100) (1,314,700) $ (1,560,200)    
Net cash used in operating activities     1,339,900 $ 1,343,700    
October 2012 Note [Member] | Twenty Accredited Investors [Member]            
Gross proceeds from issuance of common stock and convertible debt         1,350,000  
Proceeds from convertible debt     1,360,000      
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]            
Secured convertible debt 3,710,000   3,710,000      
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Original Note Purchase Agreement [Member]            
Secured convertible debt $ 4,360,000   $ 4,360,000   $ 3,000,000 $ 3,121,900
XML 35 R25.htm IDEA: XBRL DOCUMENT v3.4.0.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)
3 Months Ended 12 Months Ended
Mar. 31, 2016
Sep. 30, 2015
Accounting Policies [Abstract]    
Annual dividend yield
Expected life (years) 1 year 9 months 6 months
Risk-free interest rate 0.73% 0.08%
Expected volatility 225.53% 48.00%
XML 36 R26.htm IDEA: XBRL DOCUMENT v3.4.0.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($)
Mar. 31, 2016
Sep. 30, 2015
Carrying Value [Member]    
Liabilities    
Embedded derivative liabilities $ 1,441,700 $ 833,000
Total $ 1,441,700 $ 833,000
Level 1 [Member]    
Liabilities    
Embedded derivative liabilities
Total
Level 2 [Member]    
Liabilities    
Embedded derivative liabilities
Total
Level 3 [Member]    
Liabilities    
Embedded derivative liabilities $ 1,441,700 $ 833,000
Total $ 1,441,700 $ 833,000
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.4.0.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Sep. 30, 2015
Cash, FDIC insured amount $ 190,200   $ 190,200    
Depreciation and amortization     2,700 $ 4,400  
Deferred revenue 45,900 $ 45,900 45,900 45,900 $ 45,900
Advertising expense 85,100 29,000      
Derivative liabilities 1,441,700   1,441,700   833,000
Gain on change in fair value of derivative liability 798,200 99,300      
Allowance for doubtful accounts 1,200   1,200   1,200
Accounts payable consists of trade payables 405,700 $ 476,900 405,700 476,900  
Furniture and Equipment [Member]          
Depreciation and amortization     2,700 $ 4,400  
Accumulated depreciation and amortization 74,900   $ 74,900   $ 82,600
Furniture and Equipment [Member] | Minimum [Member]          
Useful life     3 years    
Furniture and Equipment [Member] | Maximum [Member]          
Useful life     10 years    
Computer Software development [Member]          
Useful life     3 years    
Capitalized software development costs $ 9,000   $ 9,000    
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.4.0.3
CONVERTIBLE DEBT AND EQUITY FINANCINGS (Details) - USD ($)
6 Months Ended 11 Months Ended
Mar. 31, 2016
Sep. 13, 2015
Dec. 23, 2015
Sep. 30, 2015
Sep. 15, 2015
Jul. 03, 2015
Jun. 03, 2015
Jun. 02, 2015
Mar. 18, 2015
Mar. 17, 2015
Jan. 08, 2015
Sep. 26, 2014
Sep. 22, 2014
Eleven Accredited Investors [Member]                          
Discount $ 30,700     $ 28,900                  
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                          
Balance 3,710,000                        
Discount (363,100)                        
Carrying Value 3,346,900                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Original Note Purchase Agreement [Member]                          
Due Date   Mar. 21, 2016                      
Balance 4,360,000   $ 3,121,900 $ 3,000,000                  
Discount (393,800)                        
Carrying Value $ 3,966,200                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity (Michal Votruba) [Member]                          
Due Date Dec. 31, 2017                        
Balance $ 1,850,000                        
Discount (211,100)                        
Carrying Value 1,638,900                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity (Michal Votruba) [Member] | Original Note Purchase Agreement [Member]                          
Balance $ 750,000                     $ 750,000  
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | John Pappajohn [Member]                          
Due Date Dec. 31, 2017                        
Balance $ 800,000                        
Discount (147,300)                        
Carrying Value 652,700                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | John Pappajohn [Member] | Original Note Purchase Agreement [Member]                          
Balance $ 400,000       $ 100,000     $ 100,000 $ 100,000       $ 200,000
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Thomas Tierney (Tierney Family Trust) [Member]                          
Due Date Dec. 31, 2017                        
Balance $ 540,000                        
Discount                        
Carrying Value $ 540,000                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Thomas Tierney (Tierney Family Trust) [Member] | Original Note Purchase Agreement [Member]                          
Balance $ 540,000         $ 25,000 $ 100,000     $ 115,000 $ 100,000   200,000
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robert Follman (Follman Family Trust) [Member]                          
Due Date Dec. 31, 2017                        
Balance $ 250,000                        
Discount                        
Carrying Value $ 250,000                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robert Follman (Follman Family Trust) [Member] | Original Note Purchase Agreement [Member]                          
Balance $ 100,000                 $ 100,000      
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Mr. George Carpenter [Member]                          
Due Date Dec. 31, 2017                        
Balance $ 200,000                        
Discount                        
Carrying Value $ 200,000                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Mr. George Carpenter [Member] | Original Note Purchase Agreement [Member]                          
Balance $ 200,000                       $ 200,000
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robin L. Smith [Member]                          
Due Date Dec. 31, 2017                        
Balance $ 60,000                        
Discount                        
Carrying Value $ 60,000                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Geoffrey E. Harris [Member]                          
Due Date Dec. 31, 2017                        
Balance $ 10,000                        
Discount (4,700)                        
Carrying Value $ 5,300                        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Eleven Accredited Investors [Member]                          
Due Date Dec. 31, 2017                        
Balance $ 650,000                        
Discount (30,700)                        
Carrying Value $ 619,300                        
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.4.0.3
CONVERTIBLE DEBT AND EQUITY FINANCINGS (Details Narrative)
6 Months Ended 11 Months Ended
Dec. 23, 2015
USD ($)
Number
$ / shares
shares
Apr. 14, 2015
USD ($)
Mar. 31, 2016
USD ($)
Number
shares
Sep. 13, 2015
Feb. 24, 2016
USD ($)
Number
$ / shares
shares
Dec. 28, 2015
USD ($)
$ / shares
shares
Sep. 30, 2015
USD ($)
$ / shares
Sep. 24, 2015
USD ($)
Number
Sep. 15, 2015
USD ($)
Sep. 14, 2015
USD ($)
$ / shares
Jul. 03, 2015
USD ($)
Jun. 03, 2015
USD ($)
Jun. 02, 2015
USD ($)
Mar. 18, 2015
USD ($)
Mar. 17, 2015
USD ($)
Jan. 08, 2015
USD ($)
Sep. 26, 2014
USD ($)
Sep. 22, 2014
USD ($)
John Pappajohn [Member] | Note Warrant [Member]                                    
Face amount     $ 250,000                              
Number of shares called | shares     5,000,000                              
Three Accredited Investor [Member] | Note Warrant [Member]                                    
Face amount     $ 360,000                              
Number of shares called | shares     7,200,000                              
Geoffrey E. Harris [Member] | Note Warrant [Member]                                    
Number of purchasers | Number         2                          
Face amount         $ 10,000                          
Number of shares called | shares         200,000                          
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note     $ 3,710,000                              
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity (Michal Votruba) [Member]                                    
Purchase of convertible note     $ 1,850,000                              
Maturity date of the notes     Dec. 31, 2017                              
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | John Pappajohn [Member]                                    
Purchase of convertible note     $ 800,000                              
Maturity date of the notes     Dec. 31, 2017                              
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Thomas Tierney (Tierney Family Trust) [Member]                                    
Purchase of convertible note     $ 540,000                              
Maturity date of the notes     Dec. 31, 2017                              
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robert Follman (Follman Family Trust) [Member]                                    
Purchase of convertible note     $ 250,000                              
Maturity date of the notes     Dec. 31, 2017                              
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Mr. George Carpenter [Member]                                    
Purchase of convertible note     $ 200,000                              
Maturity date of the notes     Dec. 31, 2017                              
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robin L. Smith [Member]                                    
Purchase of convertible note     $ 60,000                              
Maturity date of the notes     Dec. 31, 2017                              
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Geoffrey E. Harris [Member]                                    
Purchase of convertible note     $ 10,000                              
Maturity date of the notes     Dec. 31, 2017                              
Secured Convertible Promissory Notes (September 2015 Notes) [Member] | John Pappajohn [Member]                                    
Description of conversion terms    

The September 2015 Notes are convertible into share of Common Stock (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price, such that the conversion price of all notes will be $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock)

                             
Amendment Note Purchase Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member]                                    
Description of conversion terms    

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                             
Amendment Note Purchase Agreement [Member] | John Pappajohn [Member]                                    
Description of conversion terms    

Pursuant to the Omnibus Amendment, the Notes are convertible into shares of Common Stock at $0.055 per share: (i) automatically upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily within 15 days prior to maturity.

                             
Amendment Note Purchase Agreement [Member] | Robert Follman (Follman Family Trust) [Member]                                    
Description of conversion terms    

Pursuant to the Omnibus Amendment, these Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily, within 15 days prior to maturity.

                             
Amendment Note Purchase Agreement [Member] | Robin L. Smith [Member]                                    
Description of conversion terms    

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                             
Amendment Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Face amount   $ 3,000,000                                
Issuance of debt   $ 500,000                                
Conversion price (in dollars per share) | $ / shares                   $ 0.05                
Description of conversion terms    

Conversion price of all notes will be $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock) (the “Fixed Conversion Price”) (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price.

                             
Description of collateral    

Secured by a security interest in the Company’s intellectual property, as detailed in a security agreement.

                             
Description of repayment priority    

Upon a change of control of the Company, the holder of a Note had the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

                             
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | RSJ Private Equity (Michal Votruba) [Member]                                    
Purchase of convertible note               $ 350,000                    
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | John Pappajohn [Member]                                    
Purchase of convertible note               100,000 $ 100,000                  
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | Robert Follman (Follman Family Trust) [Member]                                    
Purchase of convertible note               $ 150,000 150,000                  
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | Six Accredited Investors [Member]                                    
Number of accredited investors | Number               6                    
Face amount               $ 710,000                    
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | Robin L. Smith [Member]                                    
Purchase of convertible note               $ 60,000   $ 60,000                
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | Geoffrey E. Harris [Member]                                    
Purchase of convertible note         $ 10,000                          
Exercise price (in dollars per share) | $ / shares         $ 0.05                          
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Face amount     $ 2,290,000                             $ 2,500,000
Conversion price (in dollars per share) | $ / shares             $ 0.25                      
Purchase of convertible note $ 3,121,900   4,360,000       $ 3,000,000                      
Maturity date of the notes       Mar. 21, 2016                            
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity (Michal Votruba) [Member]                                    
Purchase of convertible note     $ 750,000                           $ 750,000  
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | John Pappajohn [Member]                                    
Number of secured notes issued | Number     3                              
Purchase of convertible note     $ 400,000           $ 100,000       $ 100,000 $ 100,000       200,000
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Thomas Tierney (Tierney Family Trust) [Member]                                    
Number of secured notes issued | Number     5                              
Description of conversion terms    

Pursuant to the Omnibus Amendment, all such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                             
Purchase of convertible note     $ 540,000               $ 25,000 $ 100,000     $ 115,000 $ 100,000   200,000
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robert Follman (Follman Family Trust) [Member]                                    
Purchase of convertible note     $ 100,000                       $ 100,000      
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Mr. George Carpenter [Member]                                    
Description of conversion terms    

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                             
Purchase of convertible note     $ 200,000                             $ 200,000
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity & Nine Accredited Investors [Member]                                    
Number of accredited investors | Number     9                              
Number of secured notes issued | Number     15                              
Face amount     $ 2,270,000                              
Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                                    
Conversion price (in dollars per share) | $ / shares $ 0.25                                  
Number of shares called | shares 60,000,000                                  
Exercise price (in dollars per share) | $ / shares $ 0.05                                  
Second Amended Note & Warrant Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member] | Note Warrant [Member]                                    
Conversion price (in dollars per share) | $ / shares           $ 0.25                        
Number of shares called | shares           15,000,000                        
Exercise price (in dollars per share) | $ / shares           $ 0.05                        
Second Amended Note & Warrant Agreement [Member] | John Pappajohn [Member] | Note Warrant [Member]                                    
Conversion price (in dollars per share) | $ / shares $ 0.25                                  
Number of shares called | shares 16,000,000                                  
Exercise price (in dollars per share) | $ / shares $ 0.05                                  
Second Amended Note & Warrant Agreement [Member] | Thomas Tierney (Tierney Family Trust) [Member] | Note Warrant [Member]                                    
Exercise price (in dollars per share) | $ / shares 0.05                                  
Second Amended Note & Warrant Agreement [Member] | Robert Follman (Follman Family Trust) [Member] | Note Warrant [Member]                                    
Exercise price (in dollars per share) | $ / shares 0.05                                  
Second Amended Note & Warrant Agreement [Member] | Mr. George Carpenter [Member] | Note Warrant [Member]                                    
Exercise price (in dollars per share) | $ / shares 0.05                                  
Second Amended Note & Warrant Agreement [Member] | Robin L. Smith [Member] | Note Warrant [Member]                                    
Exercise price (in dollars per share) | $ / shares $ 0.05                                  
Second Amended Note & Warrant Agreement [Member] | Sixteen Accredited Investors [Member]                                    
Number of accredited investors | Number 16                                  
Number of secured notes issued | Number 16                                  
Purchase of convertible note $ 6,000,000                                  
Maturity date of the notes Dec. 31, 2017                                  
Second Amended Note & Warrant Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity (Michal Votruba) [Member]                                    
Purchase of convertible note           $ 750,000                        
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member]                                    
Face amount $ 1,000,000   $ 27,200,000                              
Description of conversion terms    

Pursuant to the Second Amended and Restated Note and Warrant Agreement, all Notes: (i) mature on December 31, 2017 (subject to earlier conversion or prepayment), (ii) earn interest at a rate of 5% per annum with interest payable at maturity, and (iii) are convertible into shares of Common Stock (a) automatically upon the closing of a qualified offering of no less than $5 million, at a conversion price of $0.05 per share or (b) voluntarily, within 15 days prior to maturity, at a conversion price of $0.05 per share.

                             
Description of collateral    

Secured by a security interest in the Company's intellectual property, as detailed in the amended and restated security agreement.

                             
Description of repayment priority    

Upon a change of control of the Company (as described in the Notes), the holder of a Note will have the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

                             
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member] | RSJ Private Equity (Michal Votruba) [Member]                                    
Face amount           $ 750,000                        
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member] | John Pappajohn [Member]                                    
Face amount $ 250,000                                  
Number of shares called | shares 5,000,000                                  
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.4.0.3
DERIVATIVE LIABILITIES (Details)
3 Months Ended 6 Months Ended 12 Months Ended
Mar. 31, 2016
Mar. 31, 2016
Sep. 30, 2015
Annual dividend yield  
Expected life 1 year 9 months   6 months
Risk-free interest rate 0.73%   0.08%
Expected volatility 225.53%   48.00%
Minimum [Member]      
Annual dividend yield    
Expected life   2 months  
Risk-free interest rate   0.08%  
Expected volatility   47.83%  
Maximum [Member]      
Annual dividend yield    
Expected life   2 years  
Risk-free interest rate   1.06%  
Expected volatility   225.32%  
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.4.0.3
DERIVATIVE LIABILITIES (Details 1) - USD ($)
6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Level 1 [Member]    
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]    
Stock warrant and other derivative liabilities at beginning
$3M of convertible debt prior to amendment  
$3M of convertible debt as amended  
Issuance of warrants and other derivatives  
Change in fair value
Stock warrant and other derivative liabilities at ending
Level 2 [Member]    
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]    
Stock warrant and other derivative liabilities at beginning
$3M of convertible debt prior to amendment  
$3M of convertible debt as amended  
Issuance of warrants and other derivatives  
Change in fair value
Stock warrant and other derivative liabilities at ending
Level 3 [Member]    
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]    
Stock warrant and other derivative liabilities at beginning $ 833,000 $ 153,100
$3M of convertible debt prior to amendment (772,800)  
$3M of convertible debt as amended 962,300  
Issuance of warrants and other derivatives 444,600  
Change in fair value (25,400) (67,300)
Stock warrant and other derivative liabilities at ending $ 1,441,700 $ 85,800
XML 42 R32.htm IDEA: XBRL DOCUMENT v3.4.0.3
DERIVATIVE LIABILITIES (Details Narrative)
3 Months Ended 6 Months Ended 11 Months Ended 12 Months Ended
Dec. 23, 2015
USD ($)
Number
$ / shares
Dec. 22, 2015
USD ($)
Mar. 31, 2016
USD ($)
Mar. 31, 2015
USD ($)
Mar. 31, 2016
USD ($)
Mar. 31, 2015
USD ($)
Sep. 13, 2015
Sep. 30, 2015
USD ($)
$ / shares
Sep. 22, 2014
USD ($)
Derivative liability     $ 1,441,700   $ 1,441,700     $ 833,000  
Gain (loss) on derivative liabilities     $ 786,900   798,200 $ 67,300      
Gains (losses) on extinguishment of debt, total     (2,337,400)      
Three Accredited Investor [Member] | Note Warrant [Member]                  
Face amount     $ 360,000   360,000        
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                  
Secured convertible debt     3,710,000   3,710,000        
Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                  
Conversion price (in dollars per share) | $ / shares $ 0.25                
Second Amended Note & Warrant Agreement [Member] | Sixteen Accredited Investors [Member]                  
Secured convertible debt $ 6,000,000                
Number of accredited investors | Number 16                
Maturity date Dec. 31, 2017                
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member]                  
Derivative liability     1,441,700   1,441,700        
Gain (loss) on derivative liabilities         786,900        
Gains (losses) on extinguishment of debt, total         786,900        
Face amount $ 1,000,000   27,200,000   27,200,000        
Second Amended Note & Warrant Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                  
Derivative liability   $ 60,200              
Gains (losses) on extinguishment of debt, total   772,800              
Derivative liability write down   $ 786,900              
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                  
Secured convertible debt 3,121,900   4,360,000   4,360,000     $ 3,000,000  
Conversion price (in dollars per share) | $ / shares               $ 0.25  
Derivative liability               $ 833,000  
Gain (loss) on derivative liabilities               $ 162,800  
Gains (losses) on extinguishment of debt, total 962,300                
Face amount     $ 2,290,000   $ 2,290,000       $ 2,500,000
Aggregate derivative liability 1,022,400                
Maturity date             Mar. 21, 2016    
Accrued interest $ 121,900                
XML 43 R33.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Details) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Total $ 40,200 $ 99,800 $ 70,900 $ 162,200
Research [Member]        
Total 10,400 10,400 20,800 20,800
Product Development [Member]        
Total 7,700 15,500 16,800 34,000
Sales And Marketing [Member]        
Total 14,900 53,400 14,900 63,300
General And Administrative [Member]        
Total $ 7,200 $ 20,500 $ 18,400 $ 44,100
XML 44 R34.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Details 1)
6 Months Ended
Mar. 31, 2016
$ / shares
shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]  
Outstanding, beginning | shares 14,230,011
Granted | shares
Exercised | shares
Forfeited | shares
Outstanding, ending | shares 14,230,011
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]  
Outstanding, beginning | $ / shares $ 0.75
Granted | $ / shares
Exercised | $ / shares
Forfeited | $ / shares
Outstanding, ending | $ / shares $ 0.75
XML 45 R35.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Details 2) - $ / shares
6 Months Ended
Mar. 31, 2016
Sep. 30, 2015
Exercise Price $ 0.75 $ 0.75
Option [Member]    
Number of Shares 14,230,011  
Weighted Average Exercise Price $ 0.75  
Option [Member] | $0.055 [Member]    
Exercise Price $ 0.055  
Number of Shares 1,750,000  
Expiration Date 2025-08  
Weighted Average Exercise Price $ 0.055  
Option [Member] | $0.04718 [Member]    
Exercise Price $ 0.04718  
Number of Shares 8,795,308  
Weighted Average Exercise Price $ 0.04718  
Option [Member] | $0.04718 [Member] | Maximum [Member]    
Expiration Date 2023-01  
Option [Member] | $0.04718 [Member] | Minimum [Member]    
Expiration Date 2022-12  
Option [Member] | $0.25 [Member]    
Exercise Price $ 0.25  
Number of Shares 2,715,109  
Weighted Average Exercise Price $ 0.25  
Option [Member] | $0.25 [Member] | Maximum [Member]    
Expiration Date 2025-01  
Option [Member] | $0.25 [Member] | Minimum [Member]    
Expiration Date 2023-03  
Option [Member] | $0.26 [Member]    
Exercise Price $ 0.26  
Number of Shares 425,000  
Expiration Date 2024-07  
Weighted Average Exercise Price $ 0.26  
Option [Member] | $3.00 [Member]    
Exercise Price $ 3  
Number of Shares 42,670  
Expiration Date 2022-03  
Weighted Average Exercise Price $ 3.00  
Option [Member] | $3.60 [Member]    
Exercise Price $ 3.6  
Number of Shares 28,648  
Expiration Date 2016-08  
Weighted Average Exercise Price $ 3.60  
Option [Member] | $3.96 [Member]    
Exercise Price $ 3.96  
Number of Shares 32,928  
Expiration Date 2016-08  
Weighted Average Exercise Price $ 3.96  
Option [Member] | $9.00 [Member]    
Exercise Price $ 9  
Number of Shares 4,525  
Expiration Date 2016-11  
Weighted Average Exercise Price $ 9.00  
Option [Member] | $12.00 [Member]    
Exercise Price $ 12  
Number of Shares 28,535  
Weighted Average Exercise Price $ 12.00  
Option [Member] | $12.00 [Member] | Maximum [Member]    
Expiration Date 2020-07  
Option [Member] | $12.00 [Member] | Minimum [Member]    
Expiration Date 2019-03  
Option [Member] | $14.10 [Member]    
Exercise Price $ 14.1  
Number of Shares 10,000  
Expiration Date 2021-03  
Weighted Average Exercise Price $ 14.10  
Option [Member] | $15.30 [Member]    
Exercise Price $ 15.3  
Number of Shares 1,373  
Expiration Date 2018-09  
Weighted Average Exercise Price $ 15.30  
Option [Member] | $16.50 [Member]    
Exercise Price $ 16.5  
Number of Shares 262,441  
Expiration Date 2020-03  
Weighted Average Exercise Price $ 16.50  
Option [Member] | $17.70 [Member]    
Exercise Price $ 17.7  
Number of Shares 953  
Expiration Date 2016-08  
Weighted Average Exercise Price $ 17.70  
Option [Member] | $24.00 [Member]    
Exercise Price $ 24  
Number of Shares 4,667  
Expiration Date 2017-12  
Weighted Average Exercise Price $ 24.00  
Option [Member] | $26.70 [Member]    
Exercise Price $ 26.7  
Number of Shares 32,297  
Expiration Date 2017-09  
Weighted Average Exercise Price $ 26.70  
Option [Member] | $28.80 [Member]    
Exercise Price $ 28.8  
Number of Shares 11,767  
Expiration Date 2018-04  
Weighted Average Exercise Price $ 28.80  
Option [Member] | $32.70 [Member]    
Exercise Price $ 32.7  
Number of Shares 83,790  
Expiration Date 2017-08  
Weighted Average Exercise Price $ 32.70  
XML 46 R36.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Details 3) - Warrant [Member]
6 Months Ended
Mar. 31, 2016
$ / shares
shares
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]  
Outstanding, beginning | shares 781,524
Granted | shares 87,200,000
Exercised | shares
Expired | shares (35,002)
Outstanding, ending | shares 87,946,522
Share Based Compensation Arrangement By Share Based Payment Award Other Than Options Outstanding Weighted Average Exercise Price [Roll Forward]  
Outstanding, beginning | $ / shares $ 0.53
Granted | $ / shares $ 0.05
Exercised | $ / shares
Expired | $ / shares $ 1
Outstanding, ending | $ / shares $ 0.05
XML 47 R37.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Details 4) - $ / shares
6 Months Ended
Mar. 31, 2016
Sep. 30, 2015
Exercise Price $ 0.75 $ 0.75
Warrant [Member]    
Number of Shares 87,946,522  
Weighted Average Exercise Price $ 0.05  
Warrant [Member] | $0.04718 [Member]    
Exercise Price $ 0.04718  
Number of Shares 38,152  
Expiration Date 2018-03  
Weighted Average Exercise Price $ 0.04718  
Warrant [Member] | $0.05 [Member]    
Exercise Price $ 0.05  
Number of Shares [1] 27,200,000  
Weighted Average Exercise Price $ 0.05  
Expiration Date Dec. 31, 2020  
Warrant [Member] | $0.05 [Member]    
Exercise Price $ 0.05  
Number of Shares [2] 60,000,000  
Weighted Average Exercise Price $ 0.05  
Expiration Date Dec. 31, 2020  
Warrant [Member] | $0.25 [Member]    
Exercise Price $ 0.25  
Number of Shares 332,200  
Weighted Average Exercise Price $ 0.25  
Warrant [Member] | $0.25 [Member] | Maximum [Member]    
Expiration Date 2017-07  
Warrant [Member] | $0.25 [Member] | Minimum [Member]    
Expiration Date 2016-04  
Warrant [Member] | $0.275 [Member]    
Exercise Price $ 0.275  
Number of Shares 324,000  
Weighted Average Exercise Price $ 0.275  
Warrant [Member] | $0.275 [Member] | Maximum [Member]    
Expiration Date 2019-03  
Warrant [Member] | $0.275 [Member] | Minimum [Member]    
Expiration Date 2018-06  
Warrant [Member] | $1.00 [Member]    
Exercise Price $ 1  
Number of Shares 32,168  
Weighted Average Exercise Price $ 1  
Warrant [Member] | $1.00 [Member] | Maximum [Member]    
Expiration Date 2017-01  
Warrant [Member] | $1.00 [Member] | Minimum [Member]    
Expiration Date 2015-10  
Warrant [Member] | $7.50 [Member]    
Exercise Price $ 7.5  
Number of Shares 3,334  
Expiration Date 2016-05  
Weighted Average Exercise Price $ 7.5  
Warrant [Member] | $9.00 [Member]    
Exercise Price $ 9  
Number of Shares 16,668  
Expiration Date 2017-07  
Weighted Average Exercise Price $ 9  
[1] (1) On December 23, 2015, the Company entered into a Second Amended Note and Warrant Purchase Agreement pursuant to which on December 23 and December 28, 2015, the Company issued December 2015 Notes to the two purchasers for an aggregate principal amount of $1,000,000 and issued a Note Warrant to each holder of December 2015 Notes to purchase the Company's Common Stock, in an amount equal to 100% of the shares underlying their December 2015 Note. Each Note Warrant is exercisable, in whole or in part, during the period beginning on the date of its issuance, and ending on the earlier of (i) December 31, 2020 and (ii) the date that is forty-five (45) days following the date on which the daily closing price of shares of the Company's Common Stock quoted on the OTCQB Venture Marketplace (or other bulletin board or exchange on which the Company's Common Stock is traded or listed) exceeds $0.25 for at least ten (10) consecutive trading days. In connection therewith, the Company will promptly notify the Note Warrant holders in the event that the daily closing price of the Company's shares of Common Stock so exceeds $0.25 for at least ten (10) consecutive trading days. Both December 2015 Notes and Note Warrants were purchased by affiliates of the Company, or an entity under such affiliate's control, as follows: (i) on December 23, 2015, John Pappajohn, a member of the board of directors of the Company, purchased a December 2015 Note for $250,000 and was issued a Note Warrant to purchase 5,000,000 shares of Common Stock; and (ii) on December 28, 2015, RSJ PE, of which, Michal Votruba, a member of the board of directors of the Company, is the Director for Life Sciences for the RSJ/Gradus Fund, purchased a December 2015 Note for $750,000 and was issued a Note Warrant to purchase 15,000,000 shares of Common Stock.
[2] (2) On December 23, 2015, in consideration for the agreement to extend the maturity date of the Notes, the Company issued to holders of all Notes outstanding prior to the date of the Second Amended Note & Warrant Agreement, Extension Warrants to purchase an aggregate of 60,000,000 shares of Common Stock. Each such holder was issued an Extension Warrant to purchase Common Stock in an amount equal to 100% of the shares underlying each such holder's previously outstanding Notes. 11 million Extension Warrants were issued to 10 accredited investors and 49 million Extension Warrants were issued to Directors and Affiliates; for further detail refer to Note 7. Related Party Transactions.
XML 48 R38.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Details 5) - Warrant [Member]
3 Months Ended
Mar. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Annual dividend yield
Expected life 5 years
Minimum [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Risk-free interest rate 1.21%
Expected volatility 255.50%
Maximum [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Risk-free interest rate 1.74%
Expected volatility 272.56%
XML 49 R39.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jan. 15, 2016
Aug. 20, 2015
Jan. 08, 2015
Mar. 31, 2016
Mar. 31, 2016
Sep. 30, 2015
Mar. 26, 2013
Dec. 10, 2012
Mar. 22, 2012
Aug. 03, 2006
Common stock authorized       500,000,000 500,000,000 500,000,000        
Common and preferred stock authorized       515,000,000 515,000,000          
Blank-check preferred stock authorized       15,000,000 15,000,000          
Blank-check preferred stock par value (in dollars per share)       $ 0.001 $ 0.001          
Common stock issued       102,717,409 102,717,409 102,417,409        
Common stock outstanding       102,717,409 102,717,409 102,417,409        
Number of options outstanding       14,230,011 14,230,011 14,230,011        
Number of options exercised                  
Common stock exercise price (in dollars per share)       $ 0.75 $ 0.75 $ 0.75        
Number of stock options granted                  
Total unrecognized stock-based compensation       $ 145,443 $ 145,443          
Consulting Agreement [Member] | Dian Griesel International [Member]                    
Monthly professional fees $ 5,000                  
Consulting Agreement [Member] | Dian Griesel International [Member]                    
Aggregate intrinsic value of awarded shares $ 6,900                  
Number of shares issued upon services 300,000                  
Warrant [Member]                    
Number of equity instruments other than options outstanding       87,946,522 87,946,522          
Description of warrant term      

The warrants expire at various times starting 2016 through 2020.

           
Minimum [Member] | Warrant [Member]                    
Common stock exercise price (in dollars per share)       $ 0.04718 $ 0.04718          
Maximum [Member] | Warrant [Member]                    
Common stock exercise price (in dollars per share)       $ 9.00 $ 9.00          
2006 Stock Incentive Plan [Member]                    
Number of shares reserved for future issuance                   667,667
Number of options outstanding       501,924 501,924          
Number of options exercised         70,825          
2006 Stock Incentive Plan [Member] | Minimum [Member]                    
Common stock exercise price (in dollars per share)                   $ 3.6
2006 Stock Incentive Plan [Member] | Maximum [Member]                    
Common stock exercise price (in dollars per share)                   $ 32.7
2012 Omnibus Incentive Compensation Plan [Member]                    
Number of shares reserved for future issuance       521,913 521,913          
Number of options outstanding       13,728,087 13,728,087          
Common stock exercise price (in dollars per share)     $ 0.25              
Number of options authorized             15,000,000 5,500,000 333,334  
Number of stock options granted     250,000              
Description of vesting rights    

The option vesting is contingent upon the achievement of agreed upon goals.

             
Restricted Stock [Member] | 2006 Stock Incentive Plan [Member]                    
Number of equity instruments other than options outstanding       6,132 6,132          
Restricted Stock [Member] | 2012 Omnibus Incentive Compensation Plan [Member]                    
Number of equity instruments other than options outstanding       750,000 750,000          
Option [Member]                    
Number of shares       14,230,011 14,230,011          
Option [Member] | $0.055 [Member]                    
Common stock exercise price (in dollars per share)       $ 0.055 $ 0.055          
Number of shares       1,750,000 1,750,000          
Robin L. Smith [Member] | Restricted Stock [Member]                    
Weighted exercise price of awarded shares (in dollars per share)   $ 0.055                
Number of awarded shares   750,000                
Aggregate intrinsic value of awarded shares   $ 41,250                
Issuance date   Oct. 30, 2015                
Management [Member] | Option [Member] | $0.055 [Member]                    
Common stock exercise price (in dollars per share)   $ 0.055                
Number of shares   1,750,000                
Expiration period   36 months                
XML 50 R40.htm IDEA: XBRL DOCUMENT v3.4.0.3
STOCKHOLDERS' DEFICIT (Details Narrative 1) - Second Amended Note & Warrant Agreement [Member]
6 Months Ended
Dec. 23, 2015
USD ($)
Number
shares
Mar. 31, 2016
USD ($)
Note Warrant [Member]    
Number of shares called 60,000,000  
Number of extension warrants 49,000,000  
Extinguishment of Debt expense | $ $ 1,196,000  
One Accredited Investor [Member] | Note Warrant [Member]    
Number of shares called 2,000,000  
Ten Accredited Investors [Member] | Note Warrant [Member]    
Number of extension warrants 11,000,000  
Number of accredited investors | Number 10  
Directors And Affiliates [Member] | Note Warrant [Member]    
Number of extension warrants 49,000,000  
Secured Convertible Promissory Notes ( December 2015 Notes) [Member]    
Face amount | $ $ 1,000,000 $ 27,200,000
Description of conversion terms  

Pursuant to the Second Amended and Restated Note and Warrant Agreement, all Notes: (i) mature on December 31, 2017 (subject to earlier conversion or prepayment), (ii) earn interest at a rate of 5% per annum with interest payable at maturity, and (iii) are convertible into shares of Common Stock (a) automatically upon the closing of a qualified offering of no less than $5 million, at a conversion price of $0.05 per share or (b) voluntarily, within 15 days prior to maturity, at a conversion price of $0.05 per share.

XML 51 R41.htm IDEA: XBRL DOCUMENT v3.4.0.3
RELATED PARTY TRANSACTIONS (Details) - USD ($)
Dec. 23, 2015
Mar. 31, 2016
Dec. 28, 2015
John Pappajohn [Member] | Note Warrant [Member]      
Face amount   $ 250,000  
Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]      
Number of additional shares called after extension 49,000,000    
Exercise price (in dollars per share) $ 0.05    
Warrant term 5 years    
Second Amended Note & Warrant Agreement [Member] | John Pappajohn [Member] | Note Warrant [Member]      
Number of additional shares called after extension 6,000,000    
Exercise price (in dollars per share) $ 0.05    
Second Amended Note & Warrant Agreement [Member] | Thomas Tierney (Tierney Family Trust) [Member] | Note Warrant [Member]      
Number of additional shares called after extension 10,800,000    
Exercise price (in dollars per share) $ 0.05    
Second Amended Note & Warrant Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member] | Note Warrant [Member]      
Number of additional shares called after extension     22,000,000
Exercise price (in dollars per share)     $ 0.05
Second Amended Note & Warrant Agreement [Member] | Robin L. Smith [Member] | Note Warrant [Member]      
Number of additional shares called after extension 1,200,000    
Exercise price (in dollars per share) $ 0.05    
Second Amended Note & Warrant Agreement [Member] | Mr. George Carpenter [Member] | Note Warrant [Member]      
Number of additional shares called after extension 4,000,000    
Exercise price (in dollars per share) $ 0.05    
Second Amended Note & Warrant Agreement [Member] | Robert Follman (Follman Family Trust) [Member] | Note Warrant [Member]      
Number of additional shares called after extension 10,000,000    
Exercise price (in dollars per share) $ 0.05    
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes [Member]      
Face amount $ 3,450,000    
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes [Member] | John Pappajohn [Member]      
Face amount 550,000    
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes [Member] | Thomas Tierney (Tierney Family Trust) [Member]      
Face amount 540,000    
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes [Member] | RSJ Private Equity (Michal Votruba) [Member]      
Face amount 1,850,000    
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes [Member] | Robin L. Smith [Member]      
Face amount 60,000    
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes [Member] | Mr. George Carpenter [Member]      
Face amount 200,000    
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes [Member] | Robert Follman (Follman Family Trust) [Member]      
Face amount $ 250,000    
XML 52 R42.htm IDEA: XBRL DOCUMENT v3.4.0.3
RELATED PARTY TRANSACTIONS (Details Narrative)
6 Months Ended
Apr. 14, 2015
USD ($)
Mar. 31, 2016
USD ($)
Number
$ / shares
shares
Feb. 24, 2016
USD ($)
$ / shares
shares
Dec. 28, 2015
USD ($)
$ / shares
shares
Dec. 23, 2015
USD ($)
$ / shares
shares
Sep. 30, 2015
USD ($)
$ / shares
Sep. 24, 2015
USD ($)
Number
Sep. 15, 2015
USD ($)
Sep. 14, 2015
USD ($)
$ / shares
Jul. 03, 2015
USD ($)
Jun. 03, 2015
USD ($)
Jun. 02, 2015
USD ($)
Mar. 28, 2015
Number
Mar. 18, 2015
USD ($)
Mar. 17, 2015
USD ($)
Jan. 08, 2015
USD ($)
Sep. 26, 2014
USD ($)
Sep. 22, 2014
USD ($)
Exercise price (in dollars per share) | $ / shares                                  
Number of stock options granted | shares                                  
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   $ 3,710,000                                
John Pappajohn [Member] | Note Warrant [Member]                                    
Face amount   $ 250,000                                
Number of shares called | shares   5,000,000                                
John Pappajohn [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   $ 800,000                                
John Pappajohn [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member]                                    
Description of conversion terms  

The September 2015 Notes are convertible into share of Common Stock (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price, such that the conversion price of all notes will be $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock)

                               
Robert Follman (Follman Family Trust) [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   $ 250,000                                
Thomas Tierney (Tierney Family Trust) [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   540,000                                
Mr. George Carpenter [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   200,000                                
Robin L. Smith [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   60,000                                
RSJ Private Equity (Michal Votruba) [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   1,850,000                                
Three Accredited Investor [Member] | Note Warrant [Member]                                    
Face amount   $ 360,000                                
Number of shares called | shares   7,200,000                                
Geoffrey E. Harris [Member] | Note Warrant [Member]                                    
Face amount     $ 10,000                              
Number of shares called | shares     200,000                              
Geoffrey E. Harris [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   $ 10,000                                
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   4,360,000     $ 3,121,900 $ 3,000,000                        
Conversion price (in dollars per share) | $ / shares           $ 0.25                        
Face amount   $ 2,290,000                               $ 2,500,000
Original Note Purchase Agreement [Member] | RSJ Private Equity & Nine Accredited Investors [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Number of accredited investors | Number   9                                
Number of secured notes issued | Number   15                                
Face amount   $ 2,270,000                                
Original Note Purchase Agreement [Member] | Michal Votruba [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   $ 750,000                                
Original Note Purchase Agreement [Member] | John Pappajohn [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Number of secured notes issued | Number   3                                
Purchase of convertible note   $ 400,000           $ 100,000       $ 100,000   $ 100,000       200,000
Original Note Purchase Agreement [Member] | Robert Follman (Follman Family Trust) [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   $ 100,000                         $ 100,000      
Original Note Purchase Agreement [Member] | Thomas Tierney (Tierney Family Trust) [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Number of secured notes issued | Number   5                                
Description of conversion terms  

Pursuant to the Omnibus Amendment, all such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                               
Purchase of convertible note   $ 540,000               $ 25,000 $ 100,000       $ 115,000 $ 100,000   200,000
Original Note Purchase Agreement [Member] | Mr. George Carpenter [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Description of conversion terms  

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                               
Purchase of convertible note   $ 200,000                               $ 200,000
Original Note Purchase Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note   $ 750,000                             $ 750,000  
Amendment Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Description of conversion terms  

Conversion price of all notes will be $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock) (the “Fixed Conversion Price”) (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price.

                               
Description of collateral  

Secured by a security interest in the Company’s intellectual property, as detailed in a security agreement.

                               
Description of repayment priority  

Upon a change of control of the Company, the holder of a Note had the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

                               
Proceeds from issuance of debt $ 500,000                                  
Conversion price (in dollars per share) | $ / shares                 $ 0.05                  
Face amount $ 3,000,000                                  
Amendment Note Purchase Agreement [Member] | John Pappajohn [Member]                                    
Description of conversion terms  

Pursuant to the Omnibus Amendment, the Notes are convertible into shares of Common Stock at $0.055 per share: (i) automatically upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily within 15 days prior to maturity.

                               
Amendment Note Purchase Agreement [Member] | John Pappajohn [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member]                                    
Purchase of convertible note             $ 100,000 100,000                    
Amendment Note Purchase Agreement [Member] | Robert Follman (Follman Family Trust) [Member]                                    
Description of conversion terms  

Pursuant to the Omnibus Amendment, these Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily, within 15 days prior to maturity.

                               
Amendment Note Purchase Agreement [Member] | Robert Follman (Follman Family Trust) [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member]                                    
Purchase of convertible note             $ 150,000 $ 150,000                    
Amendment Note Purchase Agreement [Member] | Six Accredited Investors [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member]                                    
Number of accredited investors | Number             6                      
Face amount             $ 710,000                      
Amendment Note Purchase Agreement [Member] | Robin L. Smith [Member]                                    
Description of conversion terms  

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                               
Amendment Note Purchase Agreement [Member] | Robin L. Smith [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member]                                    
Purchase of convertible note             60,000   $ 60,000                  
Amendment Note Purchase Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member]                                    
Description of conversion terms  

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                               
Amendment Note Purchase Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member]                                    
Purchase of convertible note             $ 350,000                      
Amendment Note Purchase Agreement [Member] | Geoffrey E. Harris [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member]                                    
Purchase of convertible note     $ 10,000                              
Exercise price (in dollars per share) | $ / shares     $ 0.05                              
Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                                    
Conversion price (in dollars per share) | $ / shares         $ 0.25                          
Number of shares called | shares         60,000,000                          
Exercise price (in dollars per share) | $ / shares         $ 0.05                          
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member]                                    
Description of conversion terms  

Pursuant to the Second Amended and Restated Note and Warrant Agreement, all Notes: (i) mature on December 31, 2017 (subject to earlier conversion or prepayment), (ii) earn interest at a rate of 5% per annum with interest payable at maturity, and (iii) are convertible into shares of Common Stock (a) automatically upon the closing of a qualified offering of no less than $5 million, at a conversion price of $0.05 per share or (b) voluntarily, within 15 days prior to maturity, at a conversion price of $0.05 per share.

                               
Description of collateral  

Secured by a security interest in the Company's intellectual property, as detailed in the amended and restated security agreement.

                               
Description of repayment priority  

Upon a change of control of the Company (as described in the Notes), the holder of a Note will have the option to have the Note repaid with a premium equal to 50% of the outstanding principal.

                               
Face amount   $ 27,200,000     $ 1,000,000                          
Second Amended Note & Warrant Agreement [Member] | John Pappajohn [Member] | Note Warrant [Member]                                    
Conversion price (in dollars per share) | $ / shares         $ 0.25                          
Number of shares called | shares         16,000,000                          
Exercise price (in dollars per share) | $ / shares         $ 0.05                          
Second Amended Note & Warrant Agreement [Member] | John Pappajohn [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member]                                    
Face amount         $ 250,000                          
Number of shares called | shares         5,000,000                          
Second Amended Note & Warrant Agreement [Member] | Robert Follman (Follman Family Trust) [Member] | Note Warrant [Member]                                    
Exercise price (in dollars per share) | $ / shares         $ 0.05                          
Second Amended Note & Warrant Agreement [Member] | Thomas Tierney (Tierney Family Trust) [Member] | Note Warrant [Member]                                    
Exercise price (in dollars per share) | $ / shares         0.05                          
Second Amended Note & Warrant Agreement [Member] | Mr. George Carpenter [Member] | Note Warrant [Member]                                    
Exercise price (in dollars per share) | $ / shares         0.05                          
Second Amended Note & Warrant Agreement [Member] | Robin L. Smith [Member] | Note Warrant [Member]                                    
Exercise price (in dollars per share) | $ / shares         $ 0.05                          
Second Amended Note & Warrant Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member] | Note Warrant [Member]                                    
Conversion price (in dollars per share) | $ / shares       $ 0.25                            
Number of shares called | shares       15,000,000                            
Exercise price (in dollars per share) | $ / shares       $ 0.05                            
Second Amended Note & Warrant Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                    
Purchase of convertible note       $ 750,000                            
Second Amended Note & Warrant Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member]                                    
Face amount       $ 750,000                            
Termination Agreements With SAIL Capital Partners [Member] | Governance Agreements [Member]                                    
Number of directors nominated under agreement | Number                         3          
Termination Agreements With Equity Dynamics,Inc [Member] | Governance Agreements [Member]                                    
Number of directors nominated under agreement | Number                         4          
XML 53 R43.htm IDEA: XBRL DOCUMENT v3.4.0.3
RELATED PARTY TRANSACTIONS (Details Narrative 1)
6 Months Ended 8 Months Ended 11 Months Ended 23 Months Ended
Sep. 06, 2015
USD ($)
Number
Jan. 08, 2015
USD ($)
$ / shares
shares
Jan. 05, 2015
USD ($)
Jun. 14, 2013
$ / shares
shares
Mar. 31, 2016
USD ($)
$ / shares
shares
Mar. 31, 2016
USD ($)
$ / shares
shares
Jul. 08, 2014
USD ($)
$ / shares
shares
Mar. 25, 2015
USD ($)
Feb. 24, 2016
USD ($)
$ / shares
shares
Dec. 28, 2015
USD ($)
$ / shares
shares
Dec. 23, 2015
USD ($)
$ / shares
shares
Sep. 30, 2015
USD ($)
$ / shares
Sep. 24, 2015
USD ($)
Sep. 15, 2015
USD ($)
Sep. 14, 2015
USD ($)
$ / shares
Jul. 03, 2015
USD ($)
Jun. 03, 2015
USD ($)
Jun. 02, 2015
USD ($)
Apr. 14, 2015
USD ($)
Mar. 18, 2015
USD ($)
Mar. 17, 2015
USD ($)
Sep. 26, 2014
USD ($)
Sep. 22, 2014
USD ($)
Oct. 19, 2012
USD ($)
Number of shares issued upon new issue, value         $ 6,900                                      
Marketing expense due         $ 744,200 $ 744,200           $ 852,000                        
Number of stock options granted | shares                                              
Exercise price (in dollars per share) | $ / shares                                              
John Pappajohn [Member] | Note Warrant [Member]                                                
Face amount         $ 250,000 $ 250,000                                    
Number of shares called | shares         5,000,000 5,000,000                                    
Robert Follman (Follman Family Trust) [Member] | Private Placement [Member] | Unregistered Stock [Member]                                                
Proceeds from issuance of private placement             $ 100,000                                  
Share price (in dollars per share) | $ / shares         $ 0.25 $ 0.25 $ 0.25                                  
Number of shares issued upon new issue, value         $ 500,000   $ 100,000                                  
Number of shares issued upon new issue | shares         2,000,000   400,000                                  
Geoffrey E. Harris [Member] | Note Warrant [Member]                                                
Face amount                 $ 10,000                              
Number of shares called | shares                 200,000                              
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                                
Purchase of convertible note         $ 3,710,000 $ 3,710,000                                    
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | John Pappajohn [Member]                                                
Purchase of convertible note         800,000 800,000                                    
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robert Follman (Follman Family Trust) [Member]                                                
Purchase of convertible note         250,000 250,000                                    
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robin L. Smith [Member]                                                
Purchase of convertible note         60,000 60,000                                    
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Geoffrey E. Harris [Member]                                                
Purchase of convertible note         10,000 10,000                                    
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Thomas Tierney (Tierney Family Trust) [Member]                                                
Purchase of convertible note         540,000 540,000                                    
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Mr. George Carpenter [Member]                                                
Purchase of convertible note         200,000 200,000                                    
5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity (Michal Votruba) [Member]                                                
Purchase of convertible note         $ 1,850,000 1,850,000                                    
Secured Convertible Promissory Notes (September 2015 Notes) [Member] | John Pappajohn [Member]                                                
Description of conversion terms        

The September 2015 Notes are convertible into share of Common Stock (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price, such that the conversion price of all notes will be $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock)

                                     
October 2012 Note [Member] | Robert Follman (Follman Family Trust) [Member]                                                
Purchase of convertible note                                               $ 200,000
Number of shares issued upon debt conversion | shares       4,491,310                                        
Conversion price (in dollars per share) | $ / shares       $ 0.04718                                        
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                                
Purchase of convertible note         $ 4,360,000 4,360,000         $ 3,121,900 $ 3,000,000                        
Conversion price (in dollars per share) | $ / shares                       $ 0.25                        
Face amount         2,290,000 2,290,000                                 $ 2,500,000  
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | John Pappajohn [Member]                                                
Purchase of convertible note         400,000 400,000               $ 100,000       $ 100,000   $ 100,000     200,000  
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | John Pappajohn [Member] | Private Placement [Member]                                                
Proceeds from issuance of private placement $ 50,000                                              
Number of accredited investors | Number 4                                              
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Robert Follman (Follman Family Trust) [Member]                                                
Purchase of convertible note         $ 100,000 100,000                             $ 100,000      
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Thomas Tierney (Tierney Family Trust) [Member]                                                
Description of conversion terms        

Pursuant to the Omnibus Amendment, all such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                                     
Purchase of convertible note   $ 100,000     $ 540,000 540,000                   $ 25,000 $ 100,000       $ 115,000   200,000  
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | Mr. George Carpenter [Member]                                                
Description of conversion terms        

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                                     
Purchase of convertible note         $ 200,000 200,000                                 $ 200,000  
Original Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity (Michal Votruba) [Member]                                                
Purchase of convertible note         $ 750,000 750,000                               $ 750,000    
Amendment Note Purchase Agreement [Member] | John Pappajohn [Member]                                                
Description of conversion terms        

Pursuant to the Omnibus Amendment, the Notes are convertible into shares of Common Stock at $0.055 per share: (i) automatically upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily within 15 days prior to maturity.

                                     
Amendment Note Purchase Agreement [Member] | Robert Follman (Follman Family Trust) [Member]                                                
Description of conversion terms        

Pursuant to the Omnibus Amendment, these Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million or (ii) voluntarily, within 15 days prior to maturity.

                                     
Amendment Note Purchase Agreement [Member] | Robin L. Smith [Member]                                                
Description of conversion terms        

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                                     
Amendment Note Purchase Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member]                                                
Description of conversion terms        

Pursuant to the Omnibus Amendment, such Notes are convertible into shares of Common Stock at $0.05 per share: (i) automatically, upon the closing of a qualified offering of not less than $5 million, or (ii) voluntarily, within 15 days prior to maturity.

                                     
Amendment Note Purchase Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                                                
Description of conversion terms        

Conversion price of all notes will be $0.05 per share (as adjusted for stock splits, stock dividends, combinations or the like affecting the Common Stock) (the “Fixed Conversion Price”) (i) automatically, in the event of a qualified financing of not less than $5 million, or (ii) voluntary, within 15 days prior to the maturity date of the note. The Omnibus Amendment also amended the form of note attached to the Note Purchase Agreement to reflect the Fixed Conversion Price.

                                     
Conversion price (in dollars per share) | $ / shares                             $ 0.05                  
Face amount                                     $ 3,000,000          
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | John Pappajohn [Member]                                                
Purchase of convertible note                         $ 100,000 100,000                    
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | Robert Follman (Follman Family Trust) [Member]                                                
Purchase of convertible note                         150,000 $ 150,000                    
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | Robin L. Smith [Member]                                                
Purchase of convertible note                         60,000   $ 60,000                  
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | Geoffrey E. Harris [Member]                                                
Purchase of convertible note                 $ 10,000                              
Exercise price (in dollars per share) | $ / shares                 $ 0.05                              
Number of additional shares called after extension | shares                 200,000                              
Amendment Note Purchase Agreement [Member] | Secured Convertible Promissory Notes (September 2015 Notes) [Member] | RSJ Private Equity (Michal Votruba) [Member]                                                
Purchase of convertible note                         $ 350,000                      
Marketing Services Consulting Agreement [Member] | Decision Calculus Associates (Jill Carpenter) [Member]                                                
Marketing expense paid               $ 280,000                                
Marketing expense due         $ 70,000 70,000                                    
Marketing expense paid per month           10,000                                    
Three-Month Long Consulting Engagement With Dr. Eric Warner [Member]                                                
Total professional fees     $ 30,000                                          
Number of stock options granted | shares   250,000                                            
Exercise price (in dollars per share) | $ / shares   $ 0.25                                            
Fair value of option   $ 28,300                                            
Monthly professional fees     $ 10,000                                          
Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                                                
Conversion price (in dollars per share) | $ / shares                     $ 0.25                          
Number of shares called | shares                     60,000,000                          
Exercise price (in dollars per share) | $ / shares                     $ 0.05                          
Number of additional shares called after extension | shares                     49,000,000                          
Second Amended Note & Warrant Agreement [Member] | John Pappajohn [Member] | Note Warrant [Member]                                                
Conversion price (in dollars per share) | $ / shares                     $ 0.25                          
Number of shares called | shares                     16,000,000                          
Exercise price (in dollars per share) | $ / shares                     $ 0.05                          
Number of additional shares called after extension | shares                     6,000,000                          
Second Amended Note & Warrant Agreement [Member] | Robert Follman (Follman Family Trust) [Member] | Note Warrant [Member]                                                
Exercise price (in dollars per share) | $ / shares                     $ 0.05                          
Number of additional shares called after extension | shares                     10,000,000                          
Second Amended Note & Warrant Agreement [Member] | Robin L. Smith [Member] | Note Warrant [Member]                                                
Exercise price (in dollars per share) | $ / shares                     $ 0.05                          
Number of additional shares called after extension | shares                     1,200,000                          
Second Amended Note & Warrant Agreement [Member] | Thomas Tierney (Tierney Family Trust) [Member] | Note Warrant [Member]                                                
Exercise price (in dollars per share) | $ / shares                     $ 0.05                          
Number of additional shares called after extension | shares                     10,800,000                          
Second Amended Note & Warrant Agreement [Member] | Mr. George Carpenter [Member] | Note Warrant [Member]                                                
Exercise price (in dollars per share) | $ / shares                     $ 0.05                          
Number of additional shares called after extension | shares                     4,000,000                          
Second Amended Note & Warrant Agreement [Member] | RSJ Private Equity (Michal Votruba) [Member] | Note Warrant [Member]                                                
Conversion price (in dollars per share) | $ / shares                   $ 0.25                            
Number of shares called | shares                   15,000,000                            
Exercise price (in dollars per share) | $ / shares                   $ 0.05                            
Number of additional shares called after extension | shares                   22,000,000                            
Second Amended Note & Warrant Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member] | RSJ Private Equity (Michal Votruba) [Member]                                                
Purchase of convertible note                   $ 750,000                            
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member]                                                
Description of conversion terms        

Pursuant to the Second Amended and Restated Note and Warrant Agreement, all Notes: (i) mature on December 31, 2017 (subject to earlier conversion or prepayment), (ii) earn interest at a rate of 5% per annum with interest payable at maturity, and (iii) are convertible into shares of Common Stock (a) automatically upon the closing of a qualified offering of no less than $5 million, at a conversion price of $0.05 per share or (b) voluntarily, within 15 days prior to maturity, at a conversion price of $0.05 per share.

                                     
Face amount         $ 27,200,000 $ 27,200,000         $ 1,000,000                          
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member] | John Pappajohn [Member]                                                
Face amount                     $ 250,000                          
Number of shares called | shares                     5,000,000                          
Second Amended Note & Warrant Agreement [Member] | Secured Convertible Promissory Notes ( December 2015 Notes) [Member] | RSJ Private Equity (Michal Votruba) [Member]                                                
Face amount                   $ 750,000                            
XML 54 R44.htm IDEA: XBRL DOCUMENT v3.4.0.3
LOSS PER SHARE (Details) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Net Loss for computation of basic and diluted net loss per share:        
Net loss $ (142,700) $ (696,300) $ (3,594,000) $ (1,570,900)
Basic and Diluted net loss per share:        
Basic net loss per share (in dollars per share) $ 0.00 $ (0.01) $ (0.04) $ (0.02)
Basic and Diluted weighted average shares outstanding (in shares) 102,669,022 101,667,409 102,543,215 101,667,409
Convertible Debt [Member]        
Anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:        
Anti-dilutive common equivalent shares 83,271,628 1,892,742 73,234,048 1,771,371
Option [Member]        
Anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:        
Anti-dilutive common equivalent shares 14,230,011 12,645,994 14,230,011 12,531,746
Warrant [Member]        
Anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:        
Anti-dilutive common equivalent shares 80,938,825 781,833 43,892,108 871,027
XML 55 R45.htm IDEA: XBRL DOCUMENT v3.4.0.3
COMMITMENTS AND CONTINGENT LIABILITIES (Details)
Mar. 31, 2016
USD ($)
Operating Lease Obligations  
Operating Lease Obligations, Less than 1 year $ 75,100
Operating Lease Obligations, 1 to 3 years $ 65,300
Operating Lease Obligations, 3 to 5 years
Operating Lease Obligations, More than 5 years
Operating Lease Obligations, Total $ 140,400
Capital Lease Obligations  
Capital Lease Obligations, Less than 1 year 2,200
Capital Lease Obligations, 1 to 3 years 4,800
Capital Lease Obligations, 3 to 5 years $ 1,400
Capital Lease Obligations, More than 5 years
Capital Lease Obligations, Total $ 8,400
Total Lease Obligations  
Total, Less than 1 year 77,300
Total, 1 to 3 years 70,100
Total, 3 to 5 years $ 1,400
Total, More than 5 years
Total $ 148,800
XML 56 R46.htm IDEA: XBRL DOCUMENT v3.4.0.3
COMMITMENTS AND CONTINGENT LIABILITIES (Details Narrative)
3 Months Ended 6 Months Ended 72 Months Ended
Feb. 02, 2016
USD ($)
ft²
Jan. 20, 2016
USD ($)
Apr. 24, 2013
USD ($)
Mar. 06, 2013
USD ($)
Jan. 26, 2013
USD ($)
Mar. 31, 2016
USD ($)
ft²
Mar. 31, 2015
USD ($)
Mar. 31, 2016
USD ($)
ft²
Mar. 31, 2015
USD ($)
Jan. 22, 2016
Loss Contingencies [Line Items]                    
Operating leases monthly lease payments $ 1,856             $ 4,580    
Operating leases rent expense           $ 16,200 $ 12,200 28,400 $ 24,400  
Capital leases future minimum payments due           8,400   8,400    
Capital leases future minimum payments due for 2016           1,600   1,600    
Capital leases future minimum payments due for 2017-2020           1,200   1,200    
Capital leases future minimum payments due for 2021           $ 1,400   1,400    
EEG Equipment [Member]                    
Loss Contingencies [Line Items]                    
Operating leases term of contract 23 months 15 days                  
Operating leases monthly lease payments $ 928   $ 325              
Operating leases rent expense $ 1,911                  
Proceeds from long-term capital lease obligations     $ 8,900              
Capital lease term     36 months              
Area of land | ft² 1,092                  
Capital leases future minimum payments due     $ 600              
Commence period Feb. 15, 2016                  
Expiration period Jan. 31, 2018                  
Headquarters and Neurometric Services [Member]                    
Loss Contingencies [Line Items]                    
Operating leases term of contract                   24 months
Operating leases monthly lease payments               2,290    
Operating leases rent expense               $ 4,809    
Area of land | ft²           2,290   2,290    
Commence period               Feb. 01, 2016    
Expiration period               Jan. 31, 2018    
Canon Copier [Member]                    
Loss Contingencies [Line Items]                    
Operating leases term of contract   60 months                
Operating leases monthly lease payments   $ 135                
Capital leases future minimum payments due           $ 7,800   $ 7,800    
Financial lease to acquire   $ 6,700                
Leonard J. Brandt and Brandt Ventures, GP v. CNS Response, Inc., Sail Venture Partners and David Jones [Member]                    
Loss Contingencies [Line Items]                    
Damages sought value       $ 170,000 $ 9,000,000     $ 250,000    
XML 57 R47.htm IDEA: XBRL DOCUMENT v3.4.0.3
SUBSEQUENT EVENTS (Details Narrative) - USD ($)
6 Months Ended
Apr. 05, 2016
Jan. 08, 2015
Mar. 31, 2016
May. 04, 2016
Apr. 21, 2016
Apr. 11, 2016
Apr. 07, 2016
Feb. 24, 2016
Dec. 28, 2015
Dec. 23, 2015
Number of stock options granted                  
Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                    
Number of shares called                   60,000,000
2012 Omnibus Incentive Compensation Plan [Member]                    
Number of stock options granted   250,000                
Description of vesting rights  

The option vesting is contingent upon the achievement of agreed upon goals.

               
Geoffrey E. Harris [Member] | Note Warrant [Member]                    
Face amount               $ 10,000    
Number of shares called               200,000    
RSJ Private Equity (Michal Votruba) [Member] | Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                    
Number of shares called                 15,000,000  
John Pappajohn [Member] | Note Warrant [Member]                    
Face amount     $ 250,000              
Number of shares called     5,000,000              
John Pappajohn [Member] | Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                    
Number of shares called                   16,000,000
SubsequentEventMember | Robin L. Smith [Member] | Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                    
Share price (in dollars per share)         $ 0.05          
Number of shares called         800,000          
SubsequentEventMember | Robin L. Smith [Member] | Second Amended Note & Warrant Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                    
Face amount         $ 40,000          
SubsequentEventMember | Robin L. Smith [Member] | 2012 Omnibus Incentive Compensation Plan [Member]                    
Number of stock options granted 1,000,000                  
Share price (in dollars per share) $ 0.0255                  
SubsequentEventMember | Geoffrey E. Harris [Member] | 2012 Omnibus Incentive Compensation Plan [Member]                    
Number of stock options granted 500,000                  
Share price (in dollars per share) $ 0.0255                  
SubsequentEventMember | Five Directors [Member] | 2012 Omnibus Incentive Compensation Plan [Member]                    
Number of stock options granted 25,000                  
Share price (in dollars per share) $ 0.0255                  
SubsequentEventMember | Mr. George Carpenter [Member] | 2012 Omnibus Incentive Compensation Plan [Member]                    
Number of stock options granted 1,000,000                  
Description of vesting rights

50% of these shares vested on the date of grant with the remaining 50% vesting pro-rata over 12 months starting on the date of grant, respectively.

                 
Share price (in dollars per share) $ 0.0255                  
SubsequentEventMember | Mr. Paul Buck [Member] | 2012 Omnibus Incentive Compensation Plan [Member]                    
Number of stock options granted 1,000,000                  
Description of vesting rights

50% of these shares vested on the date of grant with the remaining 50% vesting pro-rata over 12 months starting on the date of grant, respectively.

                 
Share price (in dollars per share) $ 0.0255                  
SubsequentEventMember | Staff Members [Member] | 2012 Omnibus Incentive Compensation Plan [Member]                    
Number of stock options granted 1,450,000                  
Description of vesting rights

These shares vest pro-rata over 12 months starting on the date of grant.

                 
Share price (in dollars per share) $ 0.0255                  
SubsequentEventMember | Decision Calculus Associates (Jill Carpenter) [Member] | 2012 Omnibus Incentive Compensation Plan [Member]                    
Number of stock options granted 200,000                  
Description of vesting rights

These shares vest pro-rata over 12 months starting on the date of grant.

                 
Share price (in dollars per share) $ 0.0255                  
SubsequentEventMember | RSJ Private Equity (Michal Votruba) [Member] | Second Amended Note & Warrant Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                    
Face amount             $ 200,000      
SubsequentEventMember | Robert Follman (Follman Family Trust) [Member] | Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                    
Share price (in dollars per share)             $ 0.05      
Number of shares called             4,000,000      
SubsequentEventMember | John Pappajohn [Member] | Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                    
Share price (in dollars per share)           $ 0.05        
Number of shares called           5,000,000        
SubsequentEventMember | John Pappajohn [Member] | Second Amended Note & Warrant Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                    
Face amount           $ 250,000        
SubsequentEventMember | Mr. George Carpenter & His Wife Jill [Member] | Second Amended Note & Warrant Agreement [Member] | Note Warrant [Member]                    
Share price (in dollars per share)         $ 0.05          
Number of shares called         1,000,000          
SubsequentEventMember | Mr. George Carpenter & His Wife Jill [Member] | Second Amended Note & Warrant Agreement [Member] | 5% Senior Secured Notes Convertible (the "September 2014 Notes") [Member]                    
Face amount       $ 50,000            
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