Shareholders' Equity

12 Months Ended

Jun. 30, 2013

Shareholders' Equity [Abstract]

Shareholders' Equity

7. Shareholders' Equity

Series A Preferred Stock

The Company has authorized 5,000,000 shares of $0.01 par value Series A Preferred Stock authorized for issuance. Each share of Series A Preferred Stock is convertible at any time, at the option of the holder, into one share of the Company's common stock. The Series A Preferred Stock is subject to mandatory conversion, at the option of the Company, in the event that the per share trading price of the Company's common stock is equal to or greater than $3.00 per share for 90 consecutive trading days. The Series A Preferred Stock has a liquidation preference of $0.586 per share, plus all accrued but unpaid dividends thereon, whether or not earnings are available in respect of such dividends and whether or not such dividends have been declared. The holders of Series A Preferred Stock are entitled to receive out of the assets of the Company, when and if declared by the Board out of funds legally available for that purpose, cumulative cash dividends at a rate of 10% per annum for each share of Series A Preferred Stock. Such dividends are cumulative from the date the Series A Preferred Stock was issued and payable in arrears, when and as declared by the Board, quarterly. At June 30, 2013 and 2012, cumulative dividends in arrears were approximately $1,206,000 and $947,000 (approximately $0.35 per Series A Preferred share), respectively, and at June 30, 2013 and 2012, aggregate liquidation preference approximated $2,799,000 and $2,540,000, respectively.

The holders of Series A Preferred Stock are entitled to vote on an as-converted basis with the Company's common stock and separately with respect to specified corporate acts that would adversely affect the Series A Preferred Stock.

Employee Stock Purchase Plan

Effective April 30, 1999, the Company's Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan"), which initially provided for the issuance of a maximum of 200,000 shares of common stock. In fiscal 2002, the Board of Directors approved certain amendments to the Purchase Plan, including the reservation of an additional 500,000 shares for issuance under the Purchase Plan. Eligible employees can have up to 15% of their earnings withheld, up to certain maximums, to be used to purchase shares of the Company's common stock on every July 1, October 1, January 1 and April 1. The price of the common stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the common stock on the commencement date of each three-month offering period or the specified purchase date. In April 2006, the Company temporarily suspended future purchases under the Purchase Plan due to lack of employee participation. There were no shares of common stock purchased by employees under the Purchase Plan during the years ended June 30, 2013 and 2012. At June 30, 2013, 155,959 shares were available under the Purchase Plan for future issuance.

Stock Option Plan

On March 30, 2007, the Board of Directors adopted the Internet America, Inc. 2007 Stock Option Plan ("2007 Plan") under which options to purchase up to 2,000,000 shares of the Company's common stock may be granted as incentive and nonqualified stock options to employees, executives and directors. As of June 30, 2013, 758,474 shares were issuable under the 2007 Plan.

A summary of the Company's stock options as of June 30, 2013 and 2012 and changes during those fiscal years is presented below:

	June 30, 2013					June 30, 2012
				Weighted Average Exercise					Weighted Average Exercise
	Shares			Price		Shares			Price
Outstanding at beginning of period		1,430,944		$	0.41		1,516,444		$	0.40
Granted		245,000			0.35		-			-
Exercised		-			-		-			-
Forfeited		(434,418	)		0.44		(85,500	)		0.32
Outstanding at end of period		1,241,526			0.39		1,430,944			0.41
Options exercisable at year end		524,026			0.48		760,944			0.50

As of June 30, 2013, the calculated aggregate intrinsic value of options outstanding and options exercisable was immaterial for disclosure. The intrinsic value represents the pre-tax intrinsic value, based on the Company's closing stock price on June 30, 2013 which would have been received by the option holders had all option holders exercised their options as of that date.

The following table summarizes additional information about stock options outstanding at June 30, 2013:

Exercise Price		Options Outstanding		Weighted-Average Remaining Contractual Life   (Years)		Number Exercisable
$	0.30		545,000		7.56		-
	0.35		225,000		9.34		52,500
	0.50		471,526		4.73		471,526
			1,241,526				524,026

On May 17, 2011, the Company granted options to purchase 30,000 shares of its common stock at an exercise price of $0.30 per share to certain employees, vesting contingent upon the Company realizing a net gain of 150 wireless customers at the end of the month September 2011, excluding acquisitions. This contingency was not met and these stock options were forfeited as of June 30, 2012. 

On October 30, 2012, the Company granted options to purchase 245,000 shares of its common stock at an exercise price of $0.35 per share to certain employees. If the employee was employed with the Company a year or longer at the time of the grant date, 25% vested immediately and 25% will vest each anniversary of the grant date until fully vested. If the employee was employed with the Company less than a year at the time of the grant date, 25% will vest on each anniversary of the grant date until fully vested.

In calculating the Black-Scholes value of its stock option grants, the Company used the following assumptions:

Grant Date	Term in years	Volatility	Risk Free Interest Rate	Forfeiture Rate
5/17/2011	4.75	357%	1.80%	50%
10/30/2012	4.75	410%	0.75%	50%

The expected term of options represents the period of time that options granted are expected to be outstanding.   Expected volatility assumptions utilized in the model were based on historical volatility of the Company's stock price over the expected term.  The risk-free rate is derived from the U. S. Treasury yield. The Company used an expected dividend yield of zero. After applying discounts based on the average stock price, the trading volume, and recent volatility, the Company valued the options granted during fiscal 2013 at $0.12 per share. The simplified method was used to determine the option term for all options granted during fiscal 2013 as there has not been a history of option exercises upon which to establish a better estimate of the expected term.

At June 30, 2013 the total compensation costs related to non-vested awards not yet recognized was $18,805.

Warrants

As of June 30, 2013, the Company had 394,922 warrants issued and outstanding, which were issued on September 14, 2009, equally to Mr. Mihaylo and Ambassador John Palmer, a former non-employee director of the Company. The warrants are exercisable at $0.38 per share and expire five years after the date of grant.