7. Stockholders Deficit

9 Months Ended

Mar. 31, 2013

Equity [Abstract]

Note 7 . Stockholders Deficit

Issuance of common stock and warrants for cash

On March 7, 2012, our Company’s Board of Directors approved the sale of our Company’s common stock and warrants to purchase common stock at $2.25 per unit. Each unit consisted of (i) one share of our Company's common stock; and (ii) two-year term warrants to purchase the amount of shares of common stock equal to 80% of the number of units purchased. Each warrant was issued with a fixed exercise price of $0.01 per share. As of June 30, 2012, our Company raised $657,500 through the sale of 292,222 units and the commensurate exercise of 193,778 warrants for additional cash proceeds totaling $1,938. For the nine months ended March 31, 2013, there were no additional stock issuances for cash.

Issuance of common stock for services

In May 2011, we issued 500,000 shares of common stock subject to repurchase provisions to an individual as consideration for consulting services. We recorded a prepaid stock compensation in connection with the shares granted totaling $400,000 based on the estimated value of the underlying shares of stock at the time of their issuance to the consultant. The grant was originally scheduled to vest evenly on a monthly basis over two years through May 2013, however our Company vested all of the remaining unvested shares in December 2011. The prepaid stock compensation from the grant was charged to operations at the fair market value of the vesting shares at the time of their vesting since the consultant’s performance was tied to the contractual vesting terms. Prepaid stock compensation was originally amortized proportionally over the expected vesting term of the shares at the time the shares were vested, with the difference being recorded as additional paid-in capital. For the year ended June 30, 2012, we recorded noncash charges totaling $1,547,000 in connection with this stock issuance.

On January 19, 2012, our Company issued 36,000 shares of restricted common stock to one of its former board members in exchange for additional advisory services in the area of finance and financial reporting. The shares vest over one year and any unvested shares are subject to repurchase by our Company should the recipient cease to provide for the contracted services. For the nine months ended March 31, 2013, our Company incurred a charge totaling $13,545 related to this issuance.

On May 31, 2012, we issued 10,526 shares of restricted common stock to a public relations firm as part of their compensation for services in the area of public relations related strategy, processes and tactics. For the year ended June 30, 2012, our Company recorded noncash charges totaling $20,000 related to this issuance.

On September 20, 2012, our Company issued 250,000 shares to a third party consultant in consideration for its services under the terms of a consulting agreement for investor relations and public communications services. For the three months ended March 31, 2013, we recorded noncash charges totaling $85,000 in connection with this stock issuance based on previous day’s closing price for our common stock, which is deemed the fair market value as of that date.

Share surrender and cancellation

Effective May 11, 2012, our Company entered into a Share Cancellation Agreement with Clifton Leung, a director and shareholder of our Company, pursuant to which Mr. Leung agreed to surrender 500,000 shares of Company common stock held by him. In consideration for the surrender, our Company agreed to pay Mr. Leung $5,000 representing a price of $0.01 per share of common stock. Our Company accounted for this transaction as a repurchase and cancellation of common stock. Effective June 30, 2012, Mr. Leung forgave the amount owed to him from the share cancellation agreement.

On November 29, 2012, the Company entered into a Share Cancellation Agreement with Scott Lantz pursuant to which Mr. Lantz agreed to the cancellation of 354,722 of his shares of Company common stock. Mr. Lantz is the Chief Executive Officer, Chief Financial Officer and a Director of the Company. In consideration for the surrender, our Company agreed to pay Mr. Lantz $10. Our Company accounted for this transaction as a repurchase of common stock previously issued to Mr. Lantz and recorded treasury stock on the date of the agreement. The shares were concurrently issued to certain third party investors who previously participated in the Company’s sale of common stock and warrants during the March-May 2012 fundraising. The Company measured the issuance based on the previous day’s closing market price of the common stock of $0.3210 per share and recorded $113,866 as contributed shares with a corresponding entry to additional paid in capital.

Stock options

On April 27, 2011, our Company’s Board of Directors approved the adoption of the 2011 Stock Option/Stock Issuance Plan (the “2011 Plan”) and reserved 1,500,000 shares of common stock for issuance under the 2011 Plan. The 2011 Plan provides for the issuance of both non-qualified stock options and incentive stock options (“ISOs”), and permitted grants to employees, non-employee directors and consultants of our Company. Generally, stock option grants under the 2011 Plan will vest over a period of up to four years and have a term not to exceed 10 years, although the Plan Administrator has the discretion to issue option grants with varying terms and vesting periods.

As of March 31, 2013, we have a total of 1,133,462 incentive and nonqualified stock options granted and outstanding under the Plan. All of our outstanding options have terms of between five and ten years. During the three and nine months ended March 31, 2013, we recognized share based compensation expense totaling $32,105 and $105,797, respectively, related to stock options granted through that date.

Other outstanding warrants

We issued warrants to purchase up to 2,185,600 of our common stock in connection with the sale of our common stock during the year ended June 30, 2011 and issued warrants to purchase up to 40,000 shares of our common stock in connection with the sale of our common stock during the year ended June 30, 2012. We also have warrants to purchase 921,500 of our common stock outstanding as of March 31, 2013, issued to individuals providing consulting and advisory services to our Company. During the three and nine months ended March 31, 2013, we recognized share based compensation expense related to these warrants totaling $5,056 and $36,395, respectively.

Between August 17, 2012 and March 31, 2013, our Company issued a total of 210,000 warrants in conjunction with $525,000 in convertible promissory notes to eleven accredited investors, one of which was a member of our Board of Directors and another who is a former member of our Board of Directors. In connection with the issuance of the promissory notes, the investors in the aggregate received two-year warrants to purchase up to a total of 78,750 shares of common stock at $0.50 per share, and two-year warrants to purchase up to a total of 131,250 shares of common stock at $0.01 per share. The value of all warrants granted at the date of issuance totaled $96,543 and was recorded as a discount to the notes payable. The amount will be amortized over the nine month term of the respective convertible note as additional interest expense. For the three and nine months ended March 31, 2013, we amortized $31,661 and $53,577, respectively, of discounts on note payable as interest expense.

Outstanding warrants from all sources have terms ranging from two to five years with certain of the warrants carrying registration rights of the underlying shares of common stock. The number of shares of common stock subject to exercise and the exercise price of all options and warrants outstanding at March 31, 2013 is as follows:

Shares Outstanding		Weighted Average Exercise Price		Shares Vested		Expiration Fiscal Period
	2,805,600	$	1.45		2,805,600	4th Qtr, 2013
	40,000		0.01		40,000	3rd Qtr, 2014
	200,000		1.25		200,000	4th Qtr, 2014
	108,500		0.40		108,500	1st Qtr, 2015
	104,000		0.19		104,000	2nd Qtr. 2015
	10,000		0.19		10,000	3rd Qtr. 2015
	30,000		0.53		30,000	4th Qtr, 2016
	50,000		0.50		50,000	1st Qtr, 2017
	50,000		0.50		50,000	2nd Qtr. 2017
	1,079,000		0.55		803,265	4th Qtr, 2021
	125,000		0.53		46,872	1st Qtr, 2022
	35,000		0.53		12,395	2nd Qtr, 2022
	1,462		3.25		1,462	3rd Qtr, 2022
	52,000		0.75		-	1st Qtr, 2023
	4,690,562				4,262,094

Stock based compensation

Results of operations for the three and nine months ended March 31, 2013 include share based compensation costs totaling $37,161 and $142,191, respectively, charged to selling, general and administrative expenses. For purposes of accounting for stock based compensation, the fair value of each option and warrant award is estimated on the date of grant using the Black-Scholes-Merton option pricing formula. The following weighted average assumptions were used for the calculations during the three months ended March 31, 2013:

Expected life (in years)	3.74 years
Weighted average volatility		135.89	%
Forfeiture rate		20.00	%
Risk-free interest rate		1.06	%
Expected dividend rate		-	%

The weighted average expected option and warrant term for director and employee stock options granted reflects the application of the simplified method set out in SEC Staff Accounting Bulletin No. 110. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all options. We utilized this approach as our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term. Expected volatilities are based on the historical volatility of our stock as well as those of a peer group. We estimated the forfeiture rate based on our expectation for future forfeitures and we currently expect substantially all options and warrants to vest. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at or near the time of grant. We have never declared or paid dividends and have no plans to do so in the foreseeable future.

As of March 31, 2013, $297,822 of unrecognized compensation cost related to unvested stock based compensation arrangements is expected to be recognized over a weighted-average remaining period of 4.36 months. The following is required disclosure in connection with stock options and warrants (which resulted in share based compensation charges) as of March 31, 2013: 1) weighted average exercise price - $0.77; 2) weighted average remaining contractual term vested and outstanding options – 55.5 and 63.3 months, respectively; 3) aggregate intrinsic value of outstanding and exercisable options and warrants - $298,900 and $216,079, respectively; 4) weighted average grant date fair value of options and warrants granted - $0.26 per share; and 5) weighted average fair value of options and warrants vested - $0.26 per share.

On September 6, 2012, our Company’s Board of Directors approved the repricing of options and warrants granted to employees, active consultants and board members. The repriced options and warrants had exercise prices ranging from $1.25 to $3.73. A total of 1,245,000 options and warrants were amended to reduce the exercise price to $0.52 per share, based on the most recent closing price for our Company’s common stock, which is deemed the fair market value as of that date. As a result of the repriced options and warrants, our company will be incurring additional stock based compensation totaling $31,450, recognized in the current and future periods over the remaining vesting periods related to the respective securities. For the three and nine months ended March 31, 2013, we recorded additional stock based compensation expense totaling $2,245 and $18,348, respectively, related to the repriced options and warrants.

The exercise prices for options and warrants granted and outstanding which resulted in stock based compensation charges was as follows at March 31, 2013:

Exercise Price Range		Number of options or warrants
$	0.25 - $0.50		100,000
$	0.51 – $0.75		1,297,000
$	0.76 - $1.00		-
$	1.01 - $1.25		624,000
$	1.26 - $2.00		32,500
$	2.01 - $3.00		-
$	3.01 - $4.00		1,462
			2,054,962

A summary of the status of our non-vested options and warrants as of March 31, 2013 and changes during the three months then ended is as follows:

	Shares
Non-vested outstanding, December 31, 2012		498,675
Granted		152,000
Vested		(222,207	)
Cancelled		-
Non-vested outstanding, March 31, 2013		428,468

Common Shares Reserved for Future Issuance

The following table summarizes shares of our common stock reserved for future issuance at March 31, 2013:

Stock options outstanding	1,133,462
Stock options available for future grant under the 2011 Plan	366,538
Warrants	3,557,100
Total common shares reserved for future issuance	5,057,100