Stockholders' Equity

3 Months Ended

Sep. 30, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

NOTE 4 - Stockholders' Equity

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock, par value $0.001 per share with such rights, preferences and limitation as may be set from time to time by resolution of the board of directors and the filing of a certificate of designation as required by Delaware General Corporation Law.

Common Stock

The issuances of common stock during the three months ended September 30, 2012 were as follows:

In July 2011, the Company issued 30,000 shares of common stock to a director in exchange for $30,000 in connection with the exercise of options with an exercise price of $1.00 per share.

During the three months ended September 30, 2012, the Company has issued 1,083,889 shares of common stock in exchange for $720,003 in connection with the Purchase Agreement with Lincoln Park Capital.

In August 2012, the Company issued 256,000 shares of common stock in exchange for $128,000 in connection with private placement transactions with two accredited investors.

In September 2012, the Company issued 1,740,000 shares of common stock in exchange for $870,000 in connection with the exercise of 1,640,000 warrants and 100,000 options to purchase shares of the Company's common stock related to an offer by the Company to reduce the exercise price to $0.50 per share. The original exercise prices of the warrants and options ranged from $1.25 to $1.75 per share. The cost of repricing warrants recognized by the Company amounted to $70,491 for the three months ended September 30, 2012. The cost represents the incremental increase in the fair value of the repriced warrants and options as compared to the original warrants and options granted, valued on the exercise date. The fair value of the warrants and options was determined using the Black-Scholes option pricing model.

In September 2012, our principal shareholder converted his $322,996 convertible original issue discount note which was due on September 28, 2012 into 665,992 shares of common stock.

Options to Purchase Common Stock

Stock-based compensation expense recognized under ASC 718-10 for the period July 1, 2012 to September 30, 2012 was $665,410 for stock options granted to employees and directors. This expense is included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At September 30, 2012, the total compensation cost for stock options not yet recognized was approximately $1,653,687. This cost will be recognized over the remaining vesting term of the options of approximately three years.

A summary of stock option transactions for all employee stock options for the three month periods ended September 30, 2012 and 2011 is as follows:

Employee Options

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Balance at June 30, 2011		4,439,507		$	1.12		5.39
Granted		675,000		$	1.06		10.00
Exercised		-		$	-		-
Forfeited		-		$	-		-
Expired		(525,000	)	$	1.00		-
Outstanding at September 30, 2011		4,589,507		$	1.13		6.19	$	54,406
Exercisable at September 30, 2011		2,252,924		$	1.04		4.38	$	54,406
Weighted average fair value of options granted during the three months ended September 30, 2011				$	0.61
Balance at June 30, 2012		4,589,507		$	1.04		5.95
Granted		935,000		$	0.69		8.20
Exercised		-		$	-		-
Forfeited		-		$	-		-
Expired		-		$	-		-
Outstanding at September 30, 2012		5,524,507		$	1.02		5.65	$	17,300
Exercisable at September 30, 2012		3,041,839		$	0.98		5.10	$	5,633
Weighted average fair value of options granted during the three months ended September 30, 2012				$	0.48

On September 1, 2011, ten-year options to purchase 150,000 shares of common stock at an exercise price of $1.95 share, which were contingently granted by the Company on June 3, 2011, were granted to its Chief Financial Officer, upon his transition from part time consultant to full-time employee. Of the options granted, 50,000 vested immediately and the remaining options vest semi-annually on December 31st and June 30th with the first vesting date being December 31, 2011, subject to continued employment. The options were valued using the Black-Scholes option pricing model using a volatility of 90.6% (derived from the historical market price of the Company's common stock since it began trading in June 2008) an expected term of 6.5 years (using the simplified method) and a discount rate of 2.11%. The value of the options, $224,778, will be recorded as expense over the requisite service period.

On September 20, 2011, the Company granted ten-year options to purchase 175,000 shares of common stock at an exercise price of $0.81 share to each of its three original executive officers. The options vest semi-annually on December 31st and June 30th with the first vesting date being December 31, 2011, subject to continued employment. The options were valued using the Black-Scholes option pricing model using a volatility of 88.89% (derived from the historical market price of the Company's common stock since it began trading in June 2008) an expected term of 6.5 years (using the simplified method) and a discount rate of 1.25%. The value of the options, $320,271, will be recorded as expense over the requisite service period. These options replaced options to purchase the same number of shares at an exercise price of $1.00 per share which expired on September 15, 2011.

On September 21, 2012, the Company granted options to purchase 70,000 shares of the Company's common stock at an exercise price of $0.63 per share to the father of the Company's CEO and CTO in recognition of his service. Of the options granted, 35,000 vest immediately with the remainder vesting semi-annually each December 31 and June 30 over a three year period, subject to continued employment on the vesting date. The Company valued the options at $28,358 using the Black-Scholes option pricing model using a volatility of 90.09%, based upon the historical price of the Company's common stock since June 2008, an estimated term of 4 years, using the Simplified Method and a discount rate of 0.53%.

On September 25, 2012, the Compensation Committee of the Board of Directors approved the granting of five-year options to purchase 265,000 shares of common stock at an exercise price of $0.60 per share to non-executive employees. The options vest 25% immediately with the remainder vesting annually over three years, subject to continued employment. The Company valued the options at $101,029 using the Black-Scholes option pricing model using a volatility of 89.93%, based upon the historical price of the Company's common stock since June 2008, an estimated term of 4 years, using the Simplified Method and a discount rate of 0.53%. The resulting expense will be recognized 25% immediately and the remainder over the vesting period.

A summary of options issued to directors under the 2007 Plan and changes during the period from June 30, 2011 to September 30, 2011 and from June 30, 2012 to September 30, 2012 is as follows:

Options Issued to Directors

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Balance at June 30, 2011		790,000		$	1.25		7.41
Granted		245,000		$	1.75		10.00
Exercised		(30,000	)	$	1.00		-
Forfeited		(142,500	)	$	1.46		-
Expired		-		$	-		-
Outstanding at September 30, 2011		862,500		$	1.37		8.27	$	4,650
Exercisable at September 30, 2011		505,498		$	1.23		7.42	$	4,650
Weighted average fair value of options granted during the three months ended September 30, 2011				$	1.34
Balance at June 30, 2012		857,500		$	1.36		7.96
Granted		230,000		$	-		10.00
Exercised		-		$	-		-
Forfeited		-		$	-		-
Expired		-		$	-		-
Outstanding at September 30, 2012		1,087,500		$	1.26		8.14	$	2,800
Exercisable at September 30, 2012		725,999		$	1.39		7.58	$	467
Weighted average fair value of options granted during the three months ended September 30, 2012				$	0.66

On July 1, 2011, the Company granted options to purchase 245,000 shares of the Company's common stock to directors of the Company. The options have an exercise price of $1.75 per share, vest over one year and have a ten year term. The options were valued using the Black-Scholes model using a volatility of 89.65% (derived using the historical market price for the Company's common stock since it began trading in June 2008), an expected term of 6.5 years (using the simplified method) and a discount rate of 2.35%. The value of the options, $311,001, will be recognized over the vesting term, one year.

On September 28, 2011, in connection with the resignation of a director, options to purchase 142,500 shares of common stock at a weighted average exercise price of $1.46 per share were forfeited.

On July 1, 2012, the Company issued options to purchase 230,000 shares of common stock to directors. The options have an exercise price of $0.91 per share, vest on June 30, 2013¸ subject to continuing service as a director and bear a ten year term. The options were valued using the Black-Scholes model using a volatility of 91.04% (derived using the historical market price for the Company's common stock since it began trading in June 2008), an expected term of 5.5 years (using the simplified method) and a discount rate of 0.82%. The value of these options will be recognized as expense over the requisite service period.

A summary of options issued to non-employees under the 2007 Plan and changes during the three month periods from June 30, 2011 to September 30, 2011 and from June 30, 2012 to September 30, 2012 is as follows:

Non-Employee, Non-Director Options

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Balance at June 30, 2011		540,000		$	1.16		3.14
Granted		-		$	-		-
Exercised		-		$	-		-
Forfeited		-		$	-		-
Expired		-		$	-		-
Outstanding at September 30, 2011		540,000		$	1.16		2.89	$	-
Exercisable at September 30, 2011		540,000		$	1.00		2.89	$	-
Weighted average fair value of options granted during the three months ended September 30, 2011					N/A
Balance at June 30, 2012		540,000		$	1.16		3.14
Granted		-		$	-		-
Exercised		(100,000	)	$	0.50		-
Forfeited		-		$	-		-
Expired		-		$	-		-
Outstanding at September 30, 2012		440,000		$	1.14		2.02	$	-
Exercisable at September 30, 2012		440,000		$	1.14		2.02	$	-
Weighted average fair value of options granted during the three months ended September 30, 2012					N/A

In September 2012, the Company issued 100,000 shares of common stock in exchange for $50,000 in connection with the exercise of 100,000 options to purchase shares of the Company's common stock related to an offer by the Company to reduce the exercise price to $0.50 per share. The original exercise price of the options was $1.25 per share. The Company recognized a loss resulting from the reduction of the exercise price of the options exercised in the amount of $391 representing the difference in the fair market value of the repriced options as compared to the fair market value of the original options on the exercise date. The fair market value of the options was determined using the Black-Scholes options pricing model.

Warrants to Purchase Common Stock

The Company accounts for warrants issued for services in accordance with ASC 505-50-30-2 Equity Based Payments to Non-Employees. As such, the Company calculates the fair value of the warrants granted using the Black-Scholes option pricing model and records the fair value to either prepaid expense or expense based upon the terms of the underlying contract for services. In applying the Black-Scholes method, the Company calculates volatility based upon the historical market price of the Company's common stock, utilizes discount rates obtained from the Federal Reserve Statistical Release for treasury instruments of the same duration and expected term as the contractual term of the warrants.

Warrants issued in connection with the sale of shares of common stock are treated as part of the equity transaction and are recorded in stockholders' equity or liabilities in accordance with the guidance at ASC 480-10-25.

A summary of warrants issued for settlements and changes during the periods July 1, 2011 to September 30, 2011 and from July 1, 2012 to September 30, 2012 is as follows:

Warrants Issued as Settlements

	Number of Warrants		Weighted Average Exercise Price		Remaining Contractual Life
Balance at June 30, 2011		474,508	$	1.05		1.91
Granted		-	$	-		-
Exercised		-	$	-		-
Forfeited		-	$	-		-
Expired		-	$	-		-
Outstanding at September 30, 2011		474,508	$	1.05		1.67
Exercisable at September 30, 2011		474,058	$	1.05		1.67
Weighted average fair value of warrants granted during the three months ended September 30, 2011				N/A
Balance at June 30, 2012		344,058	$	1.05		0.92
Granted		350,000	$	0.60		5.00
Exercised		-	$	-		-
Forfeited		-	$	-		-
Expired		-	$	-		-
Outstanding at September 30, 2012		694,058	$	0.84		2.84
Exercisable at September 30, 2012		694,058	$	0.84		2.84
Weighted average fair value of warrants granted during the three months ended September 30, 2012			$	0.33

A summary of warrants issued for cash and changes during the periods June 30, 2011 to September 30, 2011 and from June 30, 2012 to September 30, 2012 is as follows:

Warrants issued for cash or services

	Number of Warrants			Weighted Average Exercise Price		Remaining Contractual Life
Balance at June 30, 2011		4,651,200		$	1.46		2.68
Granted		-		$	-		-
Exercised		-		$	-		-
Forfeited		-		$	-		-
Expired		-		$	-		-
Outstanding at September 30, 2011		4,651,200		$	1.46		2.43
Exercisable at September 30, 2011		4,651,200		$	1.46		2.43
Weighted average fair value of warrants granted during the three months ended September 30, 2011					N/A
Balance at June 30, 2012		4,481,200		$	1.46		2.46
Granted		50,000		$	0.63		5.00
Exercised		(1,740,000	)	$	0.50		-
Forfeited		-		$	-		-
Expired		-		$	-		-
Outstanding at September 30, 2012		2,791,200		$	1.44		1.10
Exercisable at September 30, 2012		2,791,200		$	1.44		1.10
Weighted average fair value of warrants granted during the three months ended September 30, 2012				$	0.44

On September 21, 2012, the Board of Directors granted five year warrants to purchase 50,000 shares of the Company's common stock at an exercise price of $0.63 per share to the Company's Investor Relations firm in recognition of their performance over the past year. The warrants vested immediately. The Company valued the warrants at $21,787 using the Black-Scholes option pricing model using a volatility of 90.09%, based upon the historical price of the Company's common stock since June 2008, an estimated term of 5 years, the term of the warrants, and a discount rate of 0.70%.

On September 21, 2012, the Board of Directors granted five year warrants to purchase 350,000 shares of the Company's common stock at an exercise price of $0.63 per share to a director in recognition of his exemplary five years of service to the Company. The warrants vested immediately. The Company valued the warrants at $115,883 using the Black-Scholes option pricing model using a volatility of 90.09%, based upon the historical price of the Company's common stock since June 2008, an estimated term of 2.5 years, using the Simplified Method and a discount rate of 0.32%.

In September 2012, the Company issued 1,640,000 shares of common stock in exchange for $820,000 in connection with the exercise of 1,640,000 warrants to purchase shares of the Company's common stock related to an offer by the Company to reduce the exercise price to $0.50 per share. The original exercise prices of the warrants ranged from $1.25 to $1.75 per share. The cost of repricing warrants recognized by the Company amounted to $70,100 for the three months ended September 30, 2012. The cost represents the incremental increase in the fair value of the repriced warrants as compared to the original warrants granted, valued on the exercise date. The fair value of the warrants was determined using the Black-Scholes option pricing model.