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STOCK PURCHASE OPTIONS AND WARRANTS

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

STOCK PURCHASE OPTIONS AND WARRANTS

During the three months ended September 30, 2011, the Company did not issue any stock purchase options. However, during such period, the Company did recognize $5,705 in employee stock option expense for the amortization of warrants issued in prior periods. The Company issued warrants to purchase a total of 338,532 shares of the Company’s Common Stock. The following table presents the weighted average assumptions used to estimate the fair values of the stock options granted during the period:

		2011
Expected volatility			88 – 111	%
Expected dividends			0	%
Expected term		6 months – 5 years
Risk-free interest rate			0.09 – 0.98	%

In conjunction with Common Stock issued for cash during the period, the Company issued warrants to purchase 63,532 shares of the Company’s Common Stock as stock offering costs. The value of these warrants totaled $32,664. Offering costs have been recorded as reductions to additional paid-in capital from Common Stock proceeds.

An additional 75,000 warrants valued at $42,629 were issued in lieu of interest on outstanding notes payable and 50,000 warrants, valued at $31,427, were issued as in conjunction with convertible debt financing as a beneficial conversion feature.

The Company agreed to modify 150,000 warrants issued in conjunction with a prior equity financing agreement where in the maturity date was extended.

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s Common Stock issued to employees and non-employees of the Company during the three months ended September 30, 2011. These warrants were granted to investors, lenders and, in other instances, in lieu of cash compensation for services performed.

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Grant Date Fair Value
Outstanding as of June 30, 2011			5,756,380			$	0.86			$	1.06
Granted			338,532				0.54				0.41
Exercised			-				-				-
Cancelled			(487,000	)			0.50				1.06
Outstanding as of September 30, 2011			5,607,912			$	0.84			$	1.02

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

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