Note 8 - Stockholders' Equity:

9 Months Ended

Mar. 31, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

8. STOCKHOLDERS' EQUITY:

Series B Preferred stock:

At July 1, 2013, the Company had 200 shares of Series B redeemable convertible Preferred stock outstanding with a par value of $0.01 per share, convertible at the option of the holder at $2.00 per share, with dividends accrued and payable at 2.5% per quarter. The Series B Preferred stock is mandatorily redeemable at $2.00 per share by the Company three years after issuance and accordingly was classified outside of shareholders’ equity.

During the years ended June 30, 2013 and 2012, the Company declared dividends of $2,417 and $72,500 respectively. During the nine months ended March 31, 2014, the Company declared dividends of $1,500. At March 31, 2014, accrued dividends payable are $5,500.

Common stock:

Holders of common stock are entitled to one vote per share on all matters to be voted on by common stockholders. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share in all assets remaining after liabilities have been paid in full or set aside and the rights of any outstanding preferred stock have been satisfied. Common stock has no preemptive, redemption or conversion rights. The rights of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of any outstanding series of preferred stock or any series of preferred stock the Company may designate in the future.

Centerpoint holds 704,309 shares of the Company’s common stock. These shares of the Company’s common stock held by Centerpoint are for the benefit of its shareholders without any beneficial interest. The Company accounts for these shares similar to treasury stock.

During the nine months ended March 31, 2014, the Company issued 226,851 shares of the Company’s common stock at prices ranging from $0.75 to $1.85 per share for consulting services valued at $295,134, in the aggregate, to consultants and employees. During the nine months ended March 31, 2014, the Company issued 13,369 shares of the Company’s common stock at prices ranging from $1.46 to $1.51 per share for accounts payable of $19,940. The Company also issued 120,000 shares of fully vested bonus shares granted to Mr. Smith in fiscal years 2012 and 2013 which were expensed at grant date.

During the nine months ended March 31, 2014, the Company sold 559,200 shares of the Company’s restricted common stock at $0.75 per share for total proceeds of $419,400, net proceeds of $412,575.

During the nine months ended March 31, 2014, the Company sold 400,000 shares of the Company’s restricted common stock at $1.25 per share for total net proceeds of $500,000. The subscription agreement for the sale of these shares included a provision whereby the subscription agreement would be modified if the Company issued securities on more favorable terms prior to December 31, 2014. As such the Company issued an additional 266,667 common shares to the subscriber during the nine months ended March 31, 2014 due to the sale of common shares at $0.75 per share.

The Company also issued 20,000 shares of the Company’s restricted common stock upon receipt of its subscription receivable of $25,000 during the nine months ended March 31, 2014.

Warrants:

As of March 31, 2014, the Company had approximately 7.2 million warrants outstanding, with exercise prices from $0.75 to $4.25 and expiring on various dates through January 15, 2019.

The weighted-average exercise price for the outstanding warrants is $2.17, and the weighted-average remaining contractual life as of March 31, 2014 is 3.94 years.

During the nine months ended March 31, 2014 warrants to purchase 35,465 shares of the Company’s common stock at prices ranging from $1.12 to $1.71 per share were issued pursuant to an agreement with a consultant. The warrants were determined to have a fair value of $0.10 per warrant and expire five years from date of issuance. The Company recorded non-cash compensation expense of $3,546 related to the warrant issuances. The Company entered into an agreement with the consultant whereby the 35,465 warrants issued during the nine months ended March 31, 2014 and 38,786 warrants previously issued carry an exercise bonus equal to 75% of the exercise price to be offset against the exercise price if exercised after 24 months from the issuance of the warrants.

During the nine months ended March 31, 2014, warrants to purchase 71,250 shares of the Company’s common stock at $0.85 per share were issued pursuant the promissory notes entered into by Bassani and Shareholder in Note 4. The warrants were determined to have a fair value of $0.10 per warrant and expire on December 31, 2018. The Company recorded interest expense of $7,125 related to the warrant issuances.

As of March 31, 2014, 5,419,324 of the warrants of the Company are subject to execution/exercise bonuses under agreements with Bassani and Smith (Note 10).

Stock options:

The Company’s 2006 Consolidated Incentive Plan (the “2006 Plan”), as amended, provides for the issuance of options (or other incentive grants) to purchase up to 12,000,000 shares of the Company’s common stock. Terms of exercise and expiration of options (or other incentive grants) granted under the 2006 Plan may be established at the discretion of the Board of Directors, but no option may be exercisable for more than ten years.

In July 2013, the Company entered into an agreement with a terminated employee which entitled the former employee to modifications of existing stock options resulting in the extension of certain expiration dates and resulting in incremental non-cash compensation expense of $97,125 for the nine months ended March 31, 2014.

During the nine months ended March 31, 2014, the Company entered into agreements with Schafer and a board member, pursuant to which each is entitled to execution/exercise bonuses identical to those previously offered to Bassani and Smith (Note 10). The modification of the options for Schafer and the board member resulted in incremental non-cash compensation expense of $210,513 for the nine months ended March 31, 2014. As of March 31, 2014, 2,295,000 of the outstanding options of the Company are subject to execution/exercise bonuses.

The Company recorded compensation expense/(credits) related to employee stock options of nil and $52,690 for the three months ended March 31, 2014 and 2013, respectively, and $(223,457) and $405,799 for the nine months ended March 31, 2014 and 2013, respectively. The Company granted 67,725 and 150,000 options during the nine months ended March 31, 2014 and 2013, respectively. During the nine months ended March 31, 2014, 200,000 options were forfeited and 900,000 options expired. The fair value of the options granted during the nine months ended March 31, 2014 and 2013 was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Weighted Average, March 31, 2014		Range, March 31, 2014			Weighted Average, March 31, 2013		Range, March 31, 2013
Volatility		49%	49%	-	50%		66%	60%	-	68
Dividend yield		-		-			-		-
Risk-free interest rate		0.62%	0.59%	-	0.68%		0.32%	0.31%	-	0.34
Expected term (years)		2.68	2.63	-	2.71		3.05	2.66	-	3.25

The expected volatility was based on the historical price volatility of the Company’s common stock. The dividend yield represents the Company’s anticipated cash dividend on common stock over the expected term of the stock options. The U.S. Treasury bill rate for the expected term of the stock options was utilized to determine the risk-free interest rate. The expected term of stock options represents the period of time the stock options granted are expected to be outstanding based upon management’s estimates.

A summary of option activity under the 2006 Plan for the nine months ended March 31, 2014 is as follows:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at July 1, 2013		5,261,145		$	2.84		4.0	$	168,750
Granted		67,725			1.51
Expired		(900,000	)		2.84
Forfeited		(200,000	)		3.00
Exercised		-			-
Outstanding at March 31, 2014		4,228,870		$	2.82		3.4	$	-
Exercisable at March 31, 2014		4,228,870		$	2.82		3.4	$	-

The following table presents information relating to nonvested stock options as of March 31, 2014:

	Options			Weighted Average Grant-Date Fair Value
Nonvested at July 1, 2013		325,000		$	1.86
Granted		67,725			0.51
Vested		(192,725	)		(1.15	)
Forfeited		(200,000	)		(2.10	)
Nonvested at March 31, 2014		-		$	-

The total fair value of stock options that vested during the nine months ended March 31, 2014 and 2013 was $34,822 and $599,650, respectively. As of March 31, 2014, the Company had no unrecognized compensation cost related to stock options.

Stock-based employee compensation charges in operating expenses in the Company’s financial statements for the three and nine months ended March 31, 2014 and 2013 are as follows:

	Three months ended March 31, 2014		Three months ended March 31, 2013		Nine months ended March 31, 2014			Nine months ended March 31, 2013
General and administrative:
Fair value of stock/warrant bonuses expensed	$	-	$	-	$	-		$	1,151,250
Fair value of stock issued to an employee		-		24,999		94,998			74,997
Change in fair value from modification of option terms		-		-		307,638			-
Fair value of stock options (credited)/expensed		-		44,889		(87,517	)		379,973
Total	$	-	$	69,888	$	315,119		$	1,606,220
Research and development:
Fair value of stock options (credited)/expensed	$	-	$	7,801	$	(135,939	)	$	25,826
Total	$	-	$	7,801	$	(135,939	)	$	25,826