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7. STOCK PURCHASE OPTIONS AND WARRANTS

3 Months Ended

Sep. 30, 2013

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 three months ended September 30, 2013, the Company issued 25,000 any stock purchase options for a value of $6,045. The Company did recognize $8,046 in employee stock option expense during the quarter ended September 30, 2013 for options vested during the period that were issued in prior periods.

During the fiscal year ended June 30, 2013, the Company did not issue any stock purchase options. The Company did recognize $10,914 in employee stock option expense during the three months ended September 30, 2012 for options vested during the period that were issued in prior periods.

Stock Purchase Warrants

During the three months ended September 30, 2013, the Company issued warrants to purchase a total of 196,804 and expired 0 shares of the Company’s Common Stock. The Company issued 29,400 warrants in conjunction to a default clause in a convertible note payable and issued 167,404 warrants in conjunction to a consulting agreement entered into in July 2013. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.

During the fiscal year ended June 30, 2013, the Company issued warrants to purchase a total of 1,395,732 and expired 395,000 shares of the Company’s Common Stock. As described in Note 6, the Company issued 495,000 warrants attached to Common Stock. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.

An additional 231,250 warrants were issued in conjunction with related party convertible notes payable. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The fair market value of the warrants has been accounted for as debt discount.

An additional 574,482 warrants valued at $108,660, were issued in for services to be expensed as services were performed.

An additional 95,000 warrants valued at $19,521, were issued in advance for services to be amortized over the term of the service period.

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

	2013
Expected volatility		113 – 129	%
Expected dividends		0	%
Expected term	2 – 10 years
Risk-free interest rate		0.35 – 1.72	%

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, 2013.

Date Issued	Number of Warrants		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Expiration Date (yrs)		Value if Exercised
Balance June 30, 2013		7,530,063	$	0.67	$	2.45		4.17	$	4,770,713
Granted		154,574		0.25		0.23		5.00		55,137
Cancelled/Expired		10,058		-		-		-		-
Outstanding as of September 30, 2013		7,694,695	$	4.68	$	0.76		2.24	$	5,010,664