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9. STOCK PURCHASE OPTIONS AND WARRANTS

12 Months Ended

Jun. 30, 2012

The Board of Directors on June 10, 2009 approved the 2009 Long-Term Stock Incentive Plan. The purpose of the 2009 Long-term Stock Incentive Plan is to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by employees and other key individuals. The 2009 Long-Term Stock Incentive Plan is intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company. A maximum of 1,500,000 shares of the Company's Common Stock is reserved for issuance under stock options to be issued under the 2009 Long-Term Stock Incentive Plan. The Plan permits the grant of incentive stock options, nonstatutory stock options and restricted stock awards. The 2009 Long-Term Stock Incentive Plan is administered by the Board of Directors or, at its direction, a Compensation Committee comprised of officers of the Company.

Stock Purchase Options

During the fiscal year ended June 30, 2012, the Company did not issue any stock purchase options. The Company did recognize $11,707 in employee stock option expense during the fiscal year ended June 30, 2012 for options vested during the period that were issued in prior periods.

During the fiscal year ended June 30, 2011, the Company granted options to employees to purchase in the aggregate 312,000 shares of the Company’s Common Stock. The exercise period for the grants range from two to three years from the respective dates of the grants, and exercise prices ranged from $0.77 to $1.35. During the fiscal year ended June 30, 2011, the number of options exercised and cancelled were 20,000 and 51,000 shares, respectively. The Company recognized $437,900 in employee stock option expense during the fiscal year ended June 30, 2011 for options vested during the period.

Stock Purchase Warrants

During the fiscal year ended June 30, 2012, the Company issued warrants to purchase a total of 1,611,201 shares of the Company’s Common Stock.

In conjunction with Common Stock issued for cash during the period, the Company issued 6,885 shares of the Company’s Common Stock and warrants to purchase 63,532 shares of the Company’s Common Stock as stock offering costs. The value of these share and warrantstotaled $3,105 and $32,664, respectively. Offering costs have been recorded as reductions to additional paid-in capital from Common Stock proceeds. An additional 1,196,669 warrants valued at $450,113 were issued in lieu of interest on outstanding notes and 351,000 warrants valued at $112,733 to consultants for services rendered to the Company.

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.

On February 22, 2012, 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 presents the assumptions used to estimate the fair values of the stock warrants and options granted:

	2012			2011
Expected volatility		57 – 120	%		114-259	%
Expected dividends		0	%		0	%
Expected term	0-5 Years			3 Years
Risk-free interest rate		0.04 – 1.40	%		0.84-1.33	%

The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the fiscal year ended June 30, 2012.

Date Issued	Number of Warrants			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Expiration Date (yrs)		Value if Exercised
Balance June 30, 2010		5,756,380		$	0.86	$	3.95		2.95	$	4,175,564
Granted		1,611,201			0.45		0.41		4.00		659,463
Exercised		-			-		-		-		-
Cancelled/Expired		(838,250	)		-		-		-		-
Outstanding as of June 30, 2012		6,529,331		$	2.84	$	3.55		1.95	$	4,835,028

The following table summarizes the changes in options outstanding issued to employees of the Company during the fiscal year ended June 30, 2012.

Date Issued	Number of Warrants		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Expiration Date (yrs)		Value if Exercised
Balance June 30, 2010		698,429	$	0.85	$	1.20		2.95	$	590,843
Granted		-		-		-		-		-
Exercised		-		-		-		-		-
Cancelled/Expired		-		-		-		-		-
Outstanding as of June 30, 2012		698,429	$	0.85	$	1.20		1.95	$	590,843