COMMON STOCK, COMMON STOCK OPTIONS AND WARRANTS

3 Months Ended

Sep. 30, 2014

Common Stock And Common Stock Warrants Abstract

COMMON STOCK, COMMON STOCK OPTIONS AND WARRANTS

8. COMMON STOCK, COMMON STOCK OPTIONS AND WARRANTS

Under the 2011 Stock Incentive Plan, the Company recorded stock compensation expense of $604 and 10,002 shares of Common stock vested during the three months ended September 30, 2014, related to shares granted to Directors of the Company in July 2012.

Under the 2012 Stock Incentive Plan, the Company recorded stock compensation expense of $9,273 and 57,682 shares of Common stock vested during the three months ended September 30, 2014. All of the expense and 2,500 of the shares vested related to a grant in 2014 to a non-executive employee. Additionally, 23,698 and 31,484 of the shares vested related to payment to Directors for services on the Board of Directors in the fourth quarter of fiscal 2014 and to certain non-executive employees for fiscal 2014 performance, respectively.

Under the 2013 Stock Incentive Plan, the Company recorded stock compensation expense of $76,681 and 55,337 shares of Common stock vested during the three months ended September 30, 2014. These amounts include expenses and issuances to Directors and non-executive employees, as well as expenses and issuances to the Company’s executives under the 2014 and expenses under the 2015 Long Term Stock Incentive Plans (“LTI Stock Plans”). Stock compensation expense of $36,251 related to the vesting of shares for Directors in lieu of cash payment for services on the Board of Directors during the quarter. No expense and 36,734 of the shares issued related to certain non-executive employees for fiscal 2014 performance. Stock compensation expense of $8,587 and $31,843 and 18,603 and 0 shares of Common Stock related to the vesting of shares to the Company’s executives under the 2014 and 2015 LTI Stock Plan, respectively, as more fully described below.

During the three months ended September 30, 2014, the Company recorded stock compensation expense of $8,587 for shares vesting June 30, 2015 and 2016 and issued 18,603 shares of Common Stock for shares vested on June 30, 2014 on account of the 2014 LTI Stock Plan under the 2013 Stock Incentive Plan.

On August 28, 2014, the Board of Directors approved the 2015 LTI Stock Plan covering Stephen P. Herbert, Chairman and Chief Executive Officer, and David M. DeMedio, Chief Financial Officer. The 2015 LTI Stock Plan provides that each executive officer would be awarded shares of common stock of the Company in the event that certain metrics relating to the Company’s 2015 fiscal year would result in specified ranges of year-over-year percentage growth. The metrics are total number of connections as of June 30, 2015 as compared to total number of connections as of June 30, 2014 and adjusted EBITDA earned during the 2015 fiscal year as compared to adjusted EBITDA earned during the 2014 fiscal year.

If none of the minimum threshold year-over-year percentage target goals are achieved, the executive officers would not be awarded any shares. If all of the year-over-year percentage target goals are achieved, the executive officers would be awarded shares having the following value: Stephen P. Herbert – $341,227 (100% of base salary); and David M. DeMedio – $178,406 (75% of base salary). If all of the maximum distinguished year-over-year percentage target goals are achieved, the executive officers would be awarded shares having the following value: Mr. Herbert – $682,454 (200% of base salary); and Mr. DeMedio – $356,812 (150% of base salary). Assuming the minimum threshold year-over-year percentage target goal would be achieved for a particular metric, the number of shares to be awarded for that metric would be determined on a pro rata basis, provided that the award would not exceed the maximum distinguished award for that metric. The shares awarded under the 2015 LTI Stock Plan would vest as follows: one-third at the time of issuance (June 30, 2015); one-third on the first anniversary of issuance; and one-third on the second anniversary of issuance. The Company recorded stock compensation expense of $31,843 during the three months ended September 30, 2014 on account of the 2015 LTI Stock Plan.

During the three months ended September 30, 2013, the Company recorded stock compensation expense of $84,392 and 62,683 shares of Common Stock were issued; $8,907 for grants to the executive officers in September 2011; $19,739 for officers of the Company under the 2014 Stock Incentive Plan; $752 and $3,021 of expenses related to vesting of shares granted to Directors of the Company in March 2012 and July 2012, respectively; $57,500 for shares issued to Company Directors for fees in lieu of cash payment; offset by a reversal of $5,527 for grants to certain non-executive employees in October 2012 due to certain performance targets not being met.

During the three months ended September 30, 2013, an executive officer exercised his right to cancel shares of common stock awarded to him under his prior employment agreement and the Special Equity Plan granted in September 2012 for the payment of payroll taxes. In total, 7,379 shares of the Company’s Common Stock were cancelled to satisfy $13,946 of related payroll obligations.

COMMON STOCK OPTIONS

On August 28, 2014, the Board of Directors awarded options to purchase common stock under the Company’s 2014 Stock Option Incentive Plan to each of Messrs. Herbert and DeMedio.

Mr. Herbert was awarded incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code), to purchase up to 55,555 shares at an exercise price of $1.80 per share. The options vest on September 1, 2015, and expire if not exercised prior to September 1, 2021. Mr. Herbert was also awarded non-qualified stock options to purchase up to 150,000 shares at an exercise price of $1.80 per share. The options vest as follows: one-third on September 1, 2015; one-third on September 1, 2016; and one-third on September 1, 2017. The options expire if not exercised prior to September 1, 2021.   

Mr. DeMedio was awarded incentive stock options intended to qualify under Section 422 of the Code to purchase up to 33,333 shares at an exercise price of $1.80 per share. The options vest on September 1, 2015, and expire if not exercised prior to September 1, 2021. Mr. DeMedio was also awarded non-qualified stock options to purchase up to 90,000 shares at an exercise price of $1.80 per share. The options vest as follows: one-third on September 1, 2015; one-third on September 1, 2016; and one-third on September 1, 2017. The options expire if not exercised prior to September 1, 2021. 

The Company estimates the grant date fair value of the stock options it grants using a Black-Scholes valuation model. The Company’s assumption for expected volatility is based on its historical volatility data related to market trading of its own common stock. The Company bases its assumptions for expected life of the new stock option grants on the life of the option granted, and if relevant, its analysis of the historical exercise patterns of its stock options. The dividend yield assumption is based on dividends expected to be paid over the expected life of the stock option. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected option term of each stock option.

The weighted-average fair value of options granted during the three months ended September 30, 2014 was $1.27. There were no options granted during the three months ended September 30, 2013. The fair value of options granted during the fiscal quarter ended September 30, 2014 was estimated at the grant date using the following weighted average assumptions:

	Three months ended
	September 30, 2014
Expected volatility		79	%
Expected life		7 years
Expected dividends		0.00	%
Risk-free interest rate		2.04	%

During the three months ended September 30, 2014, the Company recorded compensation expense of $24,930 related to the stock options granted to the executive officers of the company in August 2014 under the 2014 Stock Option Incentive Plan.

For the three months ended September 30, 2014, the Company recorded compensation expense of $27,316 for stock options granted in the fiscal year ended June 30, 2014 to its non-employee Directors under the 2014 Stock Option Incentive Plan.

COMMON STOCK WARRANTS

No warrants were issued, exercised or expired during the three months ended September 30, 2014. Warrants were exercised during the three months ended September 30, 2013, resulting in the issuance of 118,141 shares of Common Stock at $1.13 per share. On September 14, 2013 warrants to purchase 903,955 shares of Common Stock, exercisable at $5.90 per share, expired unexercised.