BioMedical Technology Solutions Holdings, Inc.(fka BMTL)

[Immie]

Stock-Based Compensation:

The fair value of stock options and purchase rights pursuant to the 2008 Equity Incentive Plan is estimated using the Black-Scholes valuation model. This model required input of highly subjective assumptions, including expected life of the award and expected stock price volatility. The fair value of the grant is determined based upon a marked up value above the closing stock price on the grant date. The fair value of stock based awards expected to vest is amortized over the service period, typically the vesting period, of the award on a straight-line basis. Our estimate of forfeitures is based upon our historical activity, which we believe is indicative of expected forfeitures. In subsequent periods, if the actual rate of forfeitures differs from our estimate, the forfeiture rates may be revised, as necessary. Changes in the estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period the forfeiture is changed. Our stock based compensation was $103,913 and $290,592 for the nine months ended September 30, 2011 and 2010, respectively.

Note 3: CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES


As of September 30, 2011, we had $239,100 in convertible notes payable, all of which were issued during the nine months ended September 30, 2011 to various people including related parties. These notes have a one year term and bear interest at 8%. The conversion option allows for a conversion price of i) 55% of the average of the lowest three trading prices during the 10 day trading period prior to conversion date and ii) 80% of the ten day “VWAP” beginning on the date of the notice of conversion. BMTS evaluated the conversion option for derivative accounting consideration under ASC 815-15 and determined that the embedded conversion options should be classified as a liability and recorded at their fair value due to the above noted reset provision. The derivative liabilities were valued using the Black-Scholes Option Pricing Model and at the respective date of issuances were valued at $460,577. $236,856 was recorded as a discount against the convertible note payable and will be amortized into interest expense using the effective interest rate method over the terms of the notes. During the nine months ended September 30, 2011, $84,647, of the discount was amortized. At September 30, 2011, the valuation of the derivative liability was $431,734.




During the nine months ended September 30, 2011, the Company recognized a loss on derivative liabilities of $198,384 as a result of the change in fair value of the derivative described above.