OPTIONS, WARRANTS AND STOCK-BASED COMPENSATION

12 Months Ended

Jun. 30, 2012

Options Warrants and Stock Based Compensation [Abstract]

Options, Warrants and Stock-Based Compensation [Text Block]

10.  OPTIONS, WARRANTS AND STOCK-BASED COMPENSATION

2011 Equity Incentive Plan

On March 4, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan and reserved 50,000,000 shares of common stock for issuance to employees, directors and consultants, subject to stockholder approval by March 4, 2012.  On February 17, 2012, the stockholders approved the plan.  The plan provides for automatic annual increases, subject to Board approval, on January 1st of each year (commencing on January 1, 2012 and ending on January 1, 2021), in the aggregate number of shares reserved equal to the lesser of (a) five percent of the total number of shares outstanding on December 31st of the preceding year or (b) 3,000,000 shares.  Under the plan, the Board may grant stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards.

Valuation and amortization method. The fair value of each stock award is estimated on the grant date using the Black-Scholes option-pricing model.  The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period.

Volatility. The Company estimates volatility based on the Company’s historical volatility.

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.

Expected term. The expected term of stock options granted is based on an estimate of when options will be exercised in the future.  The Company applied the simplified method of estimating the expected term of the options, as described in the SEC’s Staff Accounting Bulletins 107 and 110, as the Company has had a significant change in its business operations as result of the reverse acquisition and the historical experience is not indicative of the expected behavior in the future.  The expected term, calculated under the simplified method, is applied to groups of stock options that have similar contractual terms.  Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

Forfeitures.   Stock-based compensation expense is recorded only for those awards that are expected to vest.  FASB ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option.  An annual forfeiture rate of 0% was applied to all unvested options as of June 30, 2012 which was management’s best estimate.  This analysis will be re-evaluated semi-annually and the forfeiture rate will be adjusted as necessary.  Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest.

The following weighted average assumptions were used for grants during the years ended June 30, 2012 and 2011:

	2012	2011
Risk-free interest rate	0.62% - 1.04%	1.76% - 2.28%
Expected dividend yield	—	—
Expected term	4.75 – 6 years	6 years
Forfeiture rate	0%	0%
Expected volatility	122.20% - 254.99%	128.99% - 136.20%

A summary of option activity under the Company’s stock plans as of June 30, 2012 and 2011 and the changes during the years then ended is presented below:

Options	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at July1, 2010		—	$	—
Granted		43,100,000		0.065
Exercised		—		—
Forfeited or expired		—		—
Outstanding at June 30, 2011		43,100,000	$	0.065	9.78 years	$	—
Granted		3,590,000		0.025
Exercised		—		—
Forfeited or expired		—		—
Outstanding at June 30, 2012		46,690,000	$	0.062	8.83 years	$	588
Exercisable at June 30, 2012		15,889,668	$	0.060	8.84 years	$	—

On April 6, 2011, the Board of Directors granted stock options to purchase 42,350,000 shares of common stock at an exercise price of $0.065 per share.  On May 13, 2011, the Board of Directors granted stock options to purchase 750,000 shares of common stock at an exercise price of $0.06 per share.  The weighted average fair value of the options granted was estimated at $0.057 per share.  These options vest over three years and have a term of 10 years.

On August 12, 2011, the Board of Directors granted stock options to purchase 120,000 shares of common stock at an exercise price of $0.05 per share.  The weighted average fair value of the options on the date of the grant was estimated at $0.043 per share.  These options vest over one year and have a term of 10 years.

On December 14, 2011, the Board of Directors granted stock options to purchase 2,500,000 shares of common stock at an exercise price of $0.015 per share.  The weighted average fair value of the options on the date of the grant was estimated at $0.008 per share. These options vest monthly over 10 months and have a term of 10 years.

On January 12, 2012, the Board of Directors granted stock options to purchase120,000 shares of common stock at an exercise price of $0.0051 per share.  The weighted average fair value of the options on the date of the grant was estimated at $0.004 per share. These options vest over one year and have a term of 10 years.

On June 3, 2012, the Board of Directors granted stock options to purchase 850,000 shares of common stock at an exercise price of $0.054 per share.  The weighted average fair value of the options on the date of the grant was estimated at $0.0537 per share. These options vest over three year and have a term of 10 years.

Stock-based compensation expense for the years ended June 30, 2012 and 2011 was $494,989 and $202,244, respectively.

On March 15, 2012, the Company agreed to issue a restricted stock award of 2,500,000 shares of common stock to a consultant for services to be rendered with 1,250,000 shares vesting on June 15, 2012 and 1,250,000 shares vesting on September 15, 2012.  As of June 30, 2012, the shares had not been issued.  Consulting expense recorded for the restricted stock award was $29,167 for the year ended June 30, 2012.

At June 30, 2012, unrecognized total compensation cost related to unvested awards of $1,002,649 is expected to be recognized over a weighted average period of 1.79 years.  At June 30, 2012 there were 3,810,000 shares reserved for future grants.

Warrants

The Company’s outstanding warrants remained in place subsequent to the reverse acquisition.  No warrants were exercised during the year ended June 30, 2012.  On July 17, 2011, warrants to purchase 200,000 shares at $1.89 per share expired.  During the year ended June 30, 2012, the Company issued 2,000,000 warrants in connection with convertible notes payable (see Note 7).  The warrants have an exercise price of $0.01 per share, are immediately exercisable and expire in five years.   No warrants were issued, exercised or expired in the year ended June 30, 2011.  The Company has reserved 2,075,000 shares of common stock for the exercise of outstanding warrants.  The following table summarizes the warrants outstanding at June 30, 2012:

Exercise price		Number		Expiration Date
$	5.85		75,000	08/03/2013
	0.01		500,000	02/10/2017
	0.01		1,000,000	02/17/2017
	0.01		500,000	04/18/2017
			2,075,000

The weighted average grant date fair value of the warrants granted during the year ended June 30, 2012 was $0.0245 per share.  The warrants were valued using the Black-Scholes option pricing model.  The following assumptions were used for warrants issued during the year ended June 30, 2012; risk free interest rates of 0.86% - 0.88%; expected dividend yield of 0%; expected term of 5 years and expected volatility of  165.24% - 203.80%.  The weighted average remaining life of the warrants at June 30, 2012 was 4.6 years.  At June 30, 2012, all warrants are exercisable and there is no aggregate intrinsic value for the warrants outstanding.

Stock Award Plan

The 2006 Stock Award Plan, pursuant to which the Company may award shares of its common stock to employees, officers, directors, consultants and advisors, remains in place subsequent to the reverse acquisition.  The Company has broad discretion in making grants under the Stock Award Plan and may make grants subject to such terms and conditions as determined by the Board of Directors.

There was no activity under the Stock Award Plan during the years ended June 30, 2012 and 2011, and there was no unrecognized compensation cost related to the plan.  As of June 30, 2012 and 2011, the Company has 111,845 shares available for future grant under the plan.