Note 7 - Stockholders' Equity:

9 Months Ended

Mar. 31, 2013

Stockholders' Equity Note Disclosure [Text Block]

7.     STOCKHOLDERS' EQUITY:

Series B Preferred stock:

At July 1, 2012, the Company had 450 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 nine months ended March 31, 2013 the Company redeemed 250 shares of its Series B Preferred stock plus accrued dividends of $2,500 for $27,500.  The remaining 200 shares have reached their maturity date, but due to the cash constraints of the Company have not been redeemed.

During the years ended June 30, 2012 and 2011, the Company declared dividends of $72,550 and $281,700 respectively. During the nine months ended March 31, 2013 and 2012, the Company declared dividends of $1,500 and $71,425, respectively.  At March 31, 2013, dividends payable are $3,500.

Series C Preferred stock:

During the nine months ended March 31, 2013, one of the Company’s Series C Preferred stockholders asked to convert their shares under the Series C Preferred Stock Conversion Subscription Agreement (“Series C Conversion Agreement”) pursuant to which the remaining Series C Preferred stockholders agreed to convert their Series C Preferred shares plus accrued dividends into restricted common stock of the Company at a conversion price of $3.00 per share.   The conversion price of $3.00 per share represents a $1.00 per share reduction from the original terms of the Series C Preferred stock.  Pursuant to the Series C Conversion Agreement the Company pays fees to any licensed/registered broker(s)/advisor(s) who assist in the conversion process composed of: a) a cash commission of $0.01 per share of common stock received by the subscribed shareholders, and b) one warrant for each 10 shares received by the participating Series C stockholders. Each warrant allows for the purchase of one share of the Company’s restricted common stock at $3.10 per share until expiration on December 31, 2014.  The Company agreed to honor the Series C Conversion Agreement on February 15, 2013, pursuant to which a total of 300 shares of Series C Preferred stock and accrued dividends of $5,000 were converted into 11,667 shares of common stock and 1,167 warrants were issued to a broker.  The Company allocated the value between the restricted common stock and the warrants based upon their relative fair value to the total value of the issuances using the share price of the common stock on the day of the conversion and the value of the warrants, which was determined to be $0.075 per warrant.  As a result, $155 and $40,591 was allocated to the warrants and restricted common stock, respectively, all of which was recorded as additional paid-in capital.  The Company paid commissions of $116 related to the conversion which resulted in a reduction of additional paid-in capital.   The Company recorded $5,746 related to the conversion inducement of the Series C stock, which is reflected as part of the value of the Series C Preferred stock with an offset to reduce additional paid-in capital, and is included in the determination of net loss applicable to common stockholders.

During the years ended June 30, 2012 and 2011, the Company declared dividends of $82,625 and $274,675 respectively. During the nine months ended March 31, 2013 and 2012, the Company declared dividends of $2,000 and $81,875, respectively.  At March 31, 2013 dividends payable are nil.

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, 2013, the Company issued 57,792 shares of the Company’s restricted common stock at prices ranging from $1.64 to $2.13 per share for consulting services valued at $112,841, in the aggregate, to consultants and an employee.  The Company also issued 45,000 shares of fully vested bonus shares granted to Mr. Smith in fiscal year 2012 which were expensed at grant date.

During the nine months ended March 31, 2013, the Company granted Mr. Bassani and Mr. Smith shares of the Company’s common stock as bonuses for signing extensions to their employment agreements.  Mr. Bassani will be issued 300,000 shares of the Company’s common stock issuable in two tranches of 150,000 shares on each of January 15, 2015 and 2016, respectively.  Mr. Smith will be issued 150,000 shares of the Company’s common shares in two tranches of 75,000 shares on each of January 15, 2014 and 2015, respectively.  The Company recorded non-cash compensation of $585,000 and $292,500 related to the future stock issuances to Mr. Bassani and Mr. Smith, respectively, as the bonuses were fully vested upon grant date during the nine months ended March 31, 2013.

During the nine months ended March 31, 2013, the Company declared contingent stock bonuses of 25,000 and 100,000 shares to Mr. Schafer and Mr. Smith, respectively, and recognized $48,750 and $195,000 of non-cash compensation expense, respectively.  The stock bonuses are contingent upon the Company’s stock price exceeding $10.00 and do not require that Mr. Schafer or Mr. Smith remain employed by the Company.

During the nine months ended March 31, 2013, the Company entered into subscription agreements to sell 2012 B UNITS for $2.25 each, with each 2012 B UNIT consisting of one 2012 B share of the Company’s restricted common stock and one 2012 B warrant to purchase one half of a share of the Company’s restricted common stock for $3.10 per share until December 31, 2014 (the “2012 B UNITS”).  During the nine months ended March 31, 2013, the Company issued 177,556 2012 B UNITS for total proceeds of $399,499.  The Company allocated the proceeds from the 2012 B shares and the 2012 B warrants based upon their relative fair values, using the share price on the day each of the subscription agreements were entered into and the fair value of the 2012 B Warrants, which was determined to be $0.075 per 2012 B Warrant.  As a result, $6,905 was allocated to the 2012 B Warrants and $392,594 was allocated to the 2012 B Shares, and both were recorded as additional paid in capital.

During the nine months ended March 31, 2013, the Company entered into subscription agreements to sell 2013 UNITS for $2.00 each, with each 2013 UNIT consisting of one 2013 Share of the Company’s restricted common stock and one 2013 Warrant to purchase one half of a share of the Company’s restricted common stock for $2.50 per share until December 31, 2014 (the “2013 UNITS”).  During the nine months ended March 31, 2013, the Company issued 330,500 2013 UNITS for total proceeds of approximately $661,000.  The Company allocated the proceeds from the 2013 shares and the 2013 warrants based upon their relative fair values, using the share price on the day each of the subscription agreements were entered into and the fair value of the 2013 Warrants, which was determined to be $0.075 per 2013 Warrant.  As a result, $12,262 was allocated to the 2013 Warrants and $648,738 was allocated to the 2013 Shares, and both were recorded as additional paid in capital.

Warrants:

As of March 31, 2013, the Company had approximately 7.1 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 $2.19, and the weighted-average remaining contractual life as of March 31, 2013 is 4.86 years.

In July 2012, warrants to purchase 50,000 and 250,000 shares of the Company’s common stock at $2.10 per share were issued pursuant to extension agreements with Mr. Bassani and Mr. Smith, respectively (Note 9).  These warrants were determined to have a fair value of $0.10 per warrant and expire on December 31, 2018.  The Company recorded non-cash compensation expense of $5,000 and $25,000, respectively, related to the warrant issuances.

During the nine months ended March 31, 2013, the Company issued warrants to purchase 88,779 and 165,250 shares of the Company’s common stock in connection with the sale of 2012 B UNITS and 2013 UNITS, respectively.

During the nine months ended March 31, 2013 warrants to purchase 30,000 shares of the Company’s common stock at $2.50 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 on June 30, 2017.  The Company recorded non-cash compensation expense of $3,000 related to the warrant issuance.

During the nine months ended March 31, 2013, the Company issued 1,667 warrants in connection with the conversion of Series C Preferred Stock.

Stock options:

The Company’s 2006 Consolidated Incentive Plan (the “2006 Plan”), as amended, provides for the issuance of options to purchase up to 8,000,000 shares of the Company’s common stock. Terms of exercise and expiration of options 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.

The Company recorded compensation expense related to employee stock options of $52,690 and $209,641 for the three months ended March 31, 2013 and 2012, respectively, and $405,799 and $2,510,747 for the nine months ended March 31, 2013 and 2012, respectively.  The Company granted 150,000 and 1,475,000 options during the nine months ended March 31, 2013 and 2012, respectively.  The fair value of the options granted during the nine months ended March 31, 2013 and 2012 were estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Weighted average, March 31, 2013			Range, March 31, 2013			Weighted average, March 31, 2012			Range, March 31, 2012
Volatility		66	%	60%	-	68%		83	%	61%	-	88%
Dividend yield		-			-			-			-
Risk-free interest rate		0.32	%	0.31%	-	0.34%		1.31	%	0.25%	-	2.02%
Expected term (years)		3.05		2.66	-	3.25		4.02		2	-	4.5

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.

7.     STOCKHOLDERS' EQUITY (continued):

Stock options (continued):

A summary of option activity under the 2006 Plan for the nine months ended March 31, 2013 is as follows:

	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at July 1, 2012		5,111,145		2.86		4.6		274,200
Granted		150,000		2.10
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at March 31, 2013		5,261,145	$	2.84		3.9	$	168,750
Exercisable at March 31, 2013		4,936,145	$	2.85		3.8	$	168,750

The following table presents information relating to nonvested stock options as of March 31, 2013:

	Options			Weighted Average Grant-Date Fair Value
Nonvested at July 1, 2012		590,000		$	1.83
Granted		150,000			0.83
Vested		(415,000	)		(1.44	)
Forfeited		-			-
Nonvested at March 31, 2013		325,000		$	1.86

The total fair value of stock options that vested during the nine months ended March 31, 2013 and 2012 was $599,650 and $2,394,575, respectively.  As of March 31, 2013, the Company had $206,491 of unrecognized compensation cost related to stock options that will be recorded over a weighted average period of less than two years.

Stock-based employee compensation charges in operating expenses in the Company’s financial statements for the three and nine months ended March 31, 2013 and 2012 are as follows:

	Three months ended March 31, 2013		Three months ended March 31, 2012		Nine months ended March 31, 2013		Nine months ended March 31, 2012
General and administrative:
Fair value of stock/warrant bonuses expensed	$	-	$	-	$	1,151,250	$	1,035,300
Fair value of stock issued to an employee		24,999		24,999		74,997		74,997
Change in fair value from modification of option terms		-		-		-		94,820
Fair value of stock options expensed		44,889		199,988		379,973		2,365,676
Total	$	69,888	$	224,987	$	1,606,220	$	3,570,793
Research and development:
Fair value of stock options expensed	$	7,801	$	9,653	$	25,826	$	50,251
Total	$	7,801	$	9,653	$	25,826	$	50,251