Quarterly report pursuant to Section 13 or 15(d)

Note 16 - Incentive and Non-Statutory Stock Option Plan

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Note 16 - Incentive and Non-Statutory Stock Option Plan
 9 Months Ended
Mar. 31, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
NOTE 16 - INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN

Common stock purchase options and warrants consisted of the following:

OPTIONS:
       
Exercise
   
Aggregated
 
Issued by the Company
 
# of shares
   
Price
   
Intrinsic Value
 
                   
Outstanding and exercisable, June 30, 2010
    7,706,917     $ 0.30 to $5.00     $ -  
Granted
    1,471,000     $ 0.65 to $1.25          
Exercised
    (1,771,000 )   $ 0.65 to $1.25          
Expired / Cancelled
    (487,600 )                
Outstanding and exercisable, June 30, 2011
    6,919,317     $ 0.30 to $5.00     $ 1,637,459  
Granted
    3,183,333     $ 0.30 to $0.75          
Exercised
    (1,983,333 )   $ 0.30 to $1.25          
Expired / Cancelled
    (7,400 )   $ 0.75 to $1.00          
Outstanding and exercisable, March 31, 2012
    8,111,917     $ 0.30 to $5.00     $ (392,000 )
                         
WARRANTS:
                       
Outstanding and exercisable, June 30, 2010
    4,763,319     $ 1.65 to $3.70     $ -  
Granted
                       
Exercised
    (3,879,028 )   $ 0.31          
Expired
    (706,061 )   $ 1.68 to $3.70          
Outstanding and exercisable, June 30, 2011
    178,230     $ 0.31 to $3.70     $ 219,119  
Granted
    2,463,959     $ 0.50 to $0.773          
Exercised
                       
Expired
    (25,000 )   $ 1.85 to $3.70          
Outstanding and exercisable, March 31, 2012
    2,617,189     $ 0.31 to $0.773     $ (99,194 )

The average life remaining on the options and warrants as of March 31, 2012 is as follows:

Exercise Price
 
Number
Outstanding
and Exercisable
   
Weighted
Average
Remaining
Contractual Life
   
Weighted
Ave
Exericse
Price
 
OPTIONS:
                 
Issued by the Company
                 
$0.01 - $0.99
    2,700,000       5.70       0.70  
$1.00 - $1.99
    1,931,917       3.40       1.89  
$2.00 - $2.99
    2,830,000       3.09       2.70  
$3.00 - $5.00
    650,000       1.80       4.38  
                         
Totals
    8,111,917       3.92       1.97  
                         
WARRANTS:
                       
$0.31 - $0.773
    2,617,189       4.49       0.66  
                         
                         
Totals
    2,617,189       4.49       0.66  

All options and warrants granted are vested and are exercisable as of March 31, 2012 except 650,000 which will be vesting in next six months.

(A) INCENTIVE AND NON-STATUTORY STOCK OPTION PLANS

The Company maintains several Incentive and Non-Statutory Stock Option Plans (“Plans”) for its employees and consultants. Options granted under these Plans to an employee of the Company become exercisable over a period of no longer than ten (10) years and no less than twenty percent (20%) of the shares are exercisable annually. Options are not exercisable, in whole or in part, prior to one (1) year from the date of grant unless the Board specifically determines otherwise, as provided.

Two types of options may be granted under these Plans: (1) Incentive Stock Options (also known as Qualified Stock Options) which may only be issued to employees of the Company and whereby the exercise price of the option is not less than the fair market value of the common stock on the date it was reserved for issuance under the Plan; and (2) Non-statutory Stock Options which may be issued to either employees or consultants of the Company and whereby the exercise price of the option is less than the fair market value of the common stock on the date it was reserved for issuance under the plan. Grants of options may be made to employees and consultants without regard to any performance measures. All options issued pursuant to the Plan are nontransferable and subject to forfeiture.

OPTIONS

During the quarter ended September 30, 2011, the Company granted 330,000 options to two employees with an exercise price of $0.50 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $63,763 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate 3.13%

Expected life 1 month

Expected volatility 100%

During the quarter ended December 31, 2011, the Company granted 200,000 options to one employee with an exercise price of $0.50 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $13,797 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate 0.3%

Expected life 1 month

Expected volatility 99.85%

During the quarter ended December 31, 2011, the Company granted 320,000 options to one employee with an exercise price of $0.40 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $24,890 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate 0.3%

Expected life 1 month

Expected volatility 83.08%

During the quarter ended December 31, 2011, the Company granted 1,300,000 options to three of its officers with an exercise price of $0.75 per share and an expiration date of 5 Years, vesting quarterly. Using the Black-Scholes method to value the options, the Company will record a total of $585,241 in compensation expense for these options on quarterly bases out of which $146,310 was recorded in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate 0.9%

Expected life 5 Years

Expected volatility 213.21%

During the quarter ended March 31, 2012, the Company granted 200,000 options to one of its employee with an exercise price of $0.50 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $4,897 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate 0.3%

Expected life 1 month

Expected volatility 42.44%

During the quarter ended March 31, 2012, the Company granted 833,333 options to five of its employees with an exercise price of $0.30 per share and an expiration date of 1 month, vesting immediately. Using the Black-Scholes method to value the options, the Company recorded $76,385 in compensation expense for these options in the accompanying consolidated financial statements. The Black-Scholes option pricing model used the following assumptions:

Risk-free interest rate 0.05%

Expected life 1 month

Expected volatility 59.81%

WARRANTS

During the quarter ended September 30, 2011, the Company entered into an agreement to issue the 2011 Convertible Note together with warrants to purchase 1,408,451 warrants of common stock at an initial exercise price of $0.895 per share with a life of five years. The Notes and Warrants terms contain anti-dilution protection.  The fair market value of these warrants was calculated as $446,480 by using Black Scholes value method. Using this value, the proceeds of Convertible note were allocated between warrants and convertible based on their relative fair values. The Company recorded $401,648 capitalized financing cost which will be amortized over the life of the note. As a result of new capital raised under the shelf registration on form S-3 the conversion price of note and exercise price of warrants has been adjusted downward from $0.895 to $0.773 and number of warrants have been increased to 1,630,209. Moreover, the Company also offered Aegis Capital Corp., the right to exercise 5% warrants at an exercise price of 125% of the offering price.

(B) EQUITY INCENTIVE PLAN

In May 2011, the shareholders approved the 2011 Equity Incentive Plan (the “2011 Plan”) which provides for the grant of equity-based awards, including options, stock appreciation rights, restricted stock awards or performance share awards or any other right or interest relating to shares or cash, to eligible participants. The aggregate number of shares reserved and available for award under the 2011 Plan is 5,000,000 (the Share Reserve). The 2011 Plan contemplates the issuance of common stock upon exercise of options or other awards granted to eligible persons under the 2011 Plan. Shares issued under the 2011 Plan may be both authorized and unissued shares or previously issued shares acquired by the Company. Upon termination or expiration of an unexercised option, stock appreciation right or other stock-based award under the 2011 Plan, in whole or in part, the number of shares of common stock subject to such award again becomes available for grant under the 2011 Plan. Any shares of restricted stock forfeited as described below will become available for grant. The maximum number of shares that may be granted to any one participant in any calendar year may not exceed 500,000 shares. All options issued pursuant to the Plan are nontransferable and subject to forfeiture.

STOCK OPTIONS

Options granted under the 2011 Plan are not generally transferable and must be exercised within 10 years, subject to earlier termination upon termination of the option holder's employment, but in no event later than the expiration of the option's term. The exercise price of each option may not be less than the fair market value of a share of the Company’s common stock on the date of grant (except in connection with the assumption or substitution for another option in a manner qualifying under Section 424(a) of the Internal Revenue Code of 1986, as amended (the Code). Incentive stock options granted to any participant who owns 10% or more of the Company’s outstanding common stock (a Ten Percent Shareholder) must have an exercise price equal to or exceeding 110% of the fair market value of a share of our common stock on the date of the grant and must not be exercisable for longer than five years. Options become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee. The maximum term of any option granted under the 2011 Plan is ten years, provided that an incentive stock option granted to a Ten Percent Shareholder must have a term not exceeding five years.

PERFORMANCE AWARDS

Under the 2011 Plan, a participant may also be awarded a "performance award," which means that the participant may receive cash, stock or other awards contingent upon achieving performance goals established by the Committee. The Committee may also make "deferred share" awards, which entitle the participant to receive our stock in the future for services performed between the date of the award and the date the participant may receive the stock. The vesting of deferred share awards maybe based on performance criteria and/or continued service with our Company. A participant who is granted a "stock appreciation right" under the Plan has the right to receive all or a percentage of the fair market value of a share of stock on the date of exercise of the stock appreciation right minus the grant price of the stock appreciation right determined by the Committee (but in no event less than the fair market value of the stock on the date of grant). Finally, the Committee may make "restricted stock" awards under the 2011 Plan, which is subject to such terms and conditions as the Committee determines and as are set forth in the award agreement related to the restricted stock. As of March 31, 2012, 57,000 shares have been issued under this plan to non- officers employees.