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STOCK PURCHASE OPTIONS AND WARRANTS

6 Months Ended

Dec. 31, 2011

Notes to Financial Statements

STOCK PURCHASE OPTIONS AND WARRANTS

Stock Purchase Options

During the six months ended December 31, 2011, the Company did not issue any stock purchase options. The Company did recognize $7,706 in employee stock option expense during the six months ended December 31, 2011 for options vested during the period that were issued in prior periods. This amount has been included within general and administrative expenses within the Company’s statement of operations.

The fair value of each option award is calculated on the date of grant using a Black-Scholes option valuation model that uses the assumptions in the table below. Expected volatilities are based on the Company’s historical volatility. The expected term is estimated via application of the simplified method set forth in SEC Staff Accounting Bulletin No. 107, Share-Based Payment, and historical information regarding employee attrition. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The following table presents the weighted average assumptions used to estimate the fair values of the stock options granted:

		2012				2011
Expected volatility			—				114 – 129%
Expected dividends			—				0	%
Expected term (years)			—				3
Risk-free interest rate			—				0.84 – 1.33%

The following table summarizes the changes in options outstanding under the 2009 Stock Incentive Plan and the related prices for the shares of the Company’s Common Stock issued to employees and non-employees of the Company. These options were granted in lieu of cash compensation for services performed.

		Number of Options				Weighted Average Exercise Price				Weighted Average Grant Date Fair Value
Outstanding at June 30, 2011			678,429				0.86				0.80
Exercisable at June 30, 2011			580,096			$	1.08			$	0.84
Granted			—				—
Exercised			—				—
Cancelled/Expired			—				—
Outstanding at Decemnber 31, 2011			678,429				0.86				0.80
Exercisable at December 31, 2011			590,096			$	1.08			$	0.84

Stock Purchase Warrants

During the six months ended December 31, 2011, the Company issued warrants to purchase a total of 841,032 shares of the Company’s Common Stock. The following table presents the assumptions used to estimate the fair values of the stock warrants granted:

		2011
Expected volatility			88 – 115	%
Expected dividends			0	%
Expected term		6 months – 5 years
Risk-free interest rate			0.09 – 1.11	%

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 125,000 warrants valued at $70,579 were issued in lieu of interest on outstanding notes.

On July 21, 2011, 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 modified warrants were treated as a modification of terms. The old warrants were revalued immediately prior to modification and the new warrants valued upon issuance. Because the warrants were originally issued in conjunction with debt financing, the difference between the old and new warrants was recorded to additional-paid in capital.

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 six months ended December 31, 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			841,032				0.47				0.50
Exercised			—				—				—
Cancelled/Expired			(487,000	)			0.50				1.06
Outstanding as of December 31, 2011			5,607,912			$	0.84			$	0.98

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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