EQUITY

9 Months Ended

Mar. 31, 2012

Notes to Financial Statements

EQUITY

NOTE 12 – EQUITY

On August 30, 2010, the Company entered into an amended and restated securities purchase agreement (“Socius Agreement”) with Socius CG II, Ltd. (“Socius”). Pursuant to the Socius Agreement the Company had the right over a term of two years, subject to certain conditions, to require Socius to purchase up to $10 million of redeemable subordinated debentures and/or shares of redeemable Series A preferred stock in one or more tranches.  The debentures bear interest at an annual rate of 10% and the shares of Series A preferred stock accumulate dividends at the same rate.  Both the debentures and the shares of Series A preferred stock are redeemable at the Company’s election at any time after the one year anniversary of issuance.  Neither the debentures nor the Series A preferred shares are convertible into common stock.

On November 10, 2010, the Company’s Board of Directors approved a certificate of designation of preferences, rights and limitations to authorize shares of Series A preferred stock in accordance with the terms of the Socius Agreement.  Upon the authorization of Series A preferred stock and in accordance with the terms of the Socius Agreement, the $517,168 of outstanding debentures issued by the Company to Socius CG II, Ltd. on September 2, 2010, and $7,510 of accrued interest were exchanged into 52.468 shares of Series A preferred stock.  Following the authorization of the Series A Preferred Stock all future tranches under the Socius Agreement involved shares of Series A preferred stock instead of debentures.

Under the Socius Agreement, in connection with each tranche Socius was obligated to purchase that number of shares of our common stock equal in value to 135% of the amount of the tranche at a per share price equal to the closing bid price of the common stock on the trading day preceding our delivery of the tranche notice.  Socius had the option to pay for the shares it purchased at its option, in cash or a collateralized promissory note.  Any such promissory note bears interest at 2.0% per year and is collateralized by securities owned by Socius with a fair market value equal to the principal amount of the promissory note. The entire principal balance and interest on the promissory note is due and payable on the later of the fourth anniversary of the date of the promissory note or when we have redeemed all the Series A preferred stock issued by us to Socius under the Socius Agreement, and may be applied by us toward the redemption of the shares of Series A preferred stock held by Socius.

In connection with the May 2012 Note transaction described below on May 7, 2012 we sent a notice to Socius to terminate the Socius Agreement.

Under the terms of the Socius Agreement, the Company was obligated to pay Socius a commitment fee in the form of shares of common stock or cash, at the option of the Company, in the amount of $500,000 if it is paid in cash and $588,235 if it is paid in shares of common stock. Payment of the commitment fee occurred 50% at the closing of the first tranche and 50% at the closing of the second tranche.

On September 2, 2010 the Company delivered the first tranche notice under the Socius Agreement pursuant to which on September 20, 2010 Socius purchased $517,168 of debentures.  In connection with this tranche, (1) Socius purchased 1,163,629 shares of common stock for a total purchase price of $698,177 and at a per share purchase price of $0.60 and (2) the Company issued to Socius 490,196 shares of common stock in payment of the commitment fee payable in connection with the tranche. As consideration for the common stock it purchased, Socius issued a collateralized promissory note maturing, the later of September 2, 2014 or when the Series A preferred shares are redeemed by the Company.  Management expects to redeem the Series A preferred stock on September 20, 2014.  The promissory note was recorded at a discount of $183,922 determined by discounting the promissory note at a rate of 10%.  The promissory note is included in the stockholders equity section of the Company’s condensed consolidated balance sheets because the promissory note was received in exchange for the issuance of common stock.

On November 12, 2010 the Company delivered the second tranche notice under the Socius Agreement pursuant to which on November 29, 2010 Socius purchased $490,000 of Series A preferred stock.  In connection with this tranche, (1) Socius purchased 906,165 shares of common stock for a total purchase price of $661,500 and at a per share purchase price of $0.73 and (2) the Company issued to Socius 402,901 shares of common stock in payment of the commitment fee payable in connection with the tranche. As consideration for the common stock it purchased, Socius issued a collateralized promissory note maturing, the later of November 12, 2014 or when the Series A preferred shares are redeemed by the Company.  Management expects to redeem the Preferred Shares on November 29, 2014.  The promissory note was recorded at a discount of $173,872 determined by discounting the promissory note at a rate of 10%.  The promissory note is included in the stockholders equity section of the Company’s condensed consolidated balance sheets because the promissory note was received in exchange for the issuance of common stock.

On January 12, 2011 the Company delivered the third tranche notice under the Socius Agreement pursuant to which on January 27, 2011 Socius purchased from the Company $2,020,000 of Series A preferred stock.  In connection with the tranche, (1) Socius purchased 1,934,042 shares of common stock for a total purchase price of $2,727,000 and at a per share purchase price of $1.41. As consideration for the Common Stock Socius purchased, Socius issued a collateralized promissory note maturing, the later of January 12, 2015 or when the Series A preferred shares are redeemed by the Company.  Management expects to redeem the Preferred Shares on January 17, 2015. The promissory note was recorded at a discount of $716,777 determined by discounting the promissory note at a rate of 10%.  The promissory note is included in the stockholders equity section of the Company’s condensed consolidated balance sheets because the promissory note was received in exchange for the issuance of common stock.

On March 16, 2011 the Company delivered the fourth tranche notice under the Socius Agreement pursuant to which on March 31, 2011 Socius purchased from the Company $520,000 of Series A preferred stock.  In connection with the tranche, (1) Socius purchased 557,142 shares of common stock for a total purchase price of $702,000 and at a per share purchase price of $1.26. As consideration for the Common Stock Socius purchased, Socius issued a collateralized promissory note maturing, the later of March 16, 2015 or when the Series A preferred shares are redeemed by the Company.  Management expects to redeem the Preferred Shares on March 31, 2015. The promissory note was recorded at a discount of $184,461 determined by discounting the promissory note at a rate of 10%.  The promissory note is included in the stockholders equity section of the Company’s condensed consolidated balance sheets because the promissory note was received in exchange for the issuance of common stock.

On September 8, 2011 the Company delivered the fifth and sixth tranche notices under the Socius Agreement pursuant to which on September  30, 2011 Socius purchased from the Company $1,447,240 of Series A preferred stock.  In connection with the tranches, Socius purchased 2,621,359 shares of common stock for a total purchase price of $1,953,775 and at an average per share purchase price of $0.75. As consideration for the Common Stock Socius purchased, Socius issued a collateralized promissory notes maturing, the later of September 8, 2015 or when the Series A preferred shares are redeemed by the Company.  Management expects to redeem the Preferred Shares on September 30, 2015. The promissory notes were recorded at a discount of $512,815 determined by discounting the promissory notes at a rate of 10%.  The promissory notes are included in the stockholders equity section of the Company’s condensed consolidated balance sheets because the promissory notes were received in exchange for the issuance of common stock.

On November 16, 2011 the Company delivered the seventh tranche notice under the Socius Agreement pursuant to which on December 2, 2011 Socius purchased from the Company $750,000 of Series A preferred stock.  In connection with the tranche, (1) Socius purchased 1,511,194 shares of common stock for a total purchase price of $1,012,500 and at a per share purchase price of $0.67. As consideration for the Common Stock Socius purchased, Socius issued a collateralized promissory note maturing, the later of November 16, 2015 or when the Series A preferred shares are redeemed by the Company.  Management expects to redeem the Preferred Shares on November 30, 2015. The promissory note was recorded at a discount of $266,130 determined by discounting the promissory note at a rate of 10%.  The promissory note is included in the stockholders equity section of the Company’s condensed consolidated balance sheets because the promissory note was received in exchange for the issuance of common stock.

The Company’s accounting for the 2% notes receivable – common stock is to accrue interest on the discounted notes receivable at 10% as a credit to additional paid in capital.  The Company’s accounting for the Series A preferred stock is to accrete dividends at 10% as a charge to additional paid in capital.

In the event of liquidation, dissolution or winding up (whether voluntary or involuntary) of the Company, the holders of shares of Series A preferred stock shall be entitled to be paid the full amount payable on such shares upon the liquidation, dissolution or winding up of the corporation fixed by the Board of Directors with respect to such shares, if any, before any amount shall be paid to the holders of the Common Stock.  The liquidation preference of the outstanding Series A preferred stock was $6,283,517 and $3,715,470 as of March 31, 2012 and June 30, 2011, respectively.  Redemption or liquidation may be paid by application of the Socius notes receivable.

On October 12, 2010, the Company entered into Stock Purchase Agreements with certain investors providing for the sale of a total of 3,329,467 shares of the Company’s common stock for an aggregate purchase price of $1,435,000 at a price per share of $0.431.  The closing took place on October 15, 2010.  The net proceeds to the Company after deducting $60,000 of offering costs, were $1,375,000.

On December 29, 2010 and January 3, 2011 the Company entered into Stock Purchase Agreements with certain investors providing for the issuance of a total of 2,103,532 shares of the Company’s common stock for an aggregate purchase price of $2,000,000 at a weighted average price per share of $0.95.  The closing took place on January 12, 2011.  The net proceeds to the Company, after deducting $57,000 of offering costs, were $1,943,000.

On June 14 and 15, 2011 the Company entered into Stock Purchase Agreements with certain investors providing for the issuance of a total of 3,049,463 shares of the Company’s common stock for an aggregate purchase price of $2,527,000 at a weighted average price per share of $0.83.  The closing took place on June 17, 2011.  The net proceeds to the Company, after deducting $153,000 of offering costs, were $2,374,000.

On December 13, 2011, the Company entered into Stock Purchase Agreements with a strategic investor previously known to the Company and certain Company officers and directors providing for the issuance of a total of 1,167,340 shares of common stock for an aggregate purchase price of $875,505 at a price per share equal to $0.75 which was the closing price of the Company’s common stock on December 12, 2011.  On December 14, 2011, the Company entered into Stock Purchase Agreements with certain investors providing for the issuance of a total of 1,425,000 shares of the Company’s common stock for an aggregate purchase price of $1,011,893 at a price per share of $0.7101 which was the closing price of the Company’s common stock on December 13, 2011.  The closing for both transactions took place on December 16, 2011.  The net proceeds to the Company after deducting $84,343 of offering costs were 1,803,055.

On January 31, 2012 and February 1, 2012, the Company entered into Stock Purchase Agreements with certain investors including certain members of the Company’s Board of Directors and management providing for the issuance of a total of 4,431,603 shares of the Company’s common stock for an aggregate purchase price of $3,165,000 at a weighted average price per share of $0.71.  The closing took place on February 7, 2012.  The net proceeds to the Company, after deducting $308,049 of offering costs, were $2,856,954.