Annual report pursuant to section 13 and 15(d)

STOCK OPTIONS AND WARRANTS

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STOCK OPTIONS AND WARRANTS
 12 Months Ended
Jun. 30, 2013
STOCK OPTIONS AND WARRANTS [Abstract]  
STOCK OPTIONS AND WARRANTS
NOTE 6 – STOCK OPTIONS AND WARRANTS

The Company adopted a qualified equity incentive plan (the "Plan") on March 4, 2001. Under the Plan the Company is authorized to grant up to 3,000,000 shares of common stock. On December 13, 2004, the shareholders approved the Plan and ratified the amendment to increase the total number of shares to be granted under the Plan from 3,000,000 to 4,000,000 effective November 1, 2004.  On November 13, 2007 the shareholders ratified the amendment to increase the total number of shares to be granted under the Plan from 4,000,000 to 6,000,000. This plan expired in March 2011.
 
On November 17, 2009, the Board of Directors (the "Board') granted 681,785 stock options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2009. In addition, the Board granted 248,564 warrants payments to consultants for payments of their services and incentive performance awards.  Of 681,785 stock options grant, approximately 115,428 were awarded to the board members for their services and were vested on the date of grant. Of 248,564 warrants issued, 99,977 warrants were vested immediately on the grant date. The remainder 566,357 stock options and 148,587 warrants were vested one-third immediately, one-third were vested on November 17, 2010 and the remaining one-third were vested on November 17, 2011, assuming the person receiving the equity awards is employed or being utilized by the Company at the time of vesting.  The exercise price of those stock options and warrants is $0.77 per share. The weighted average grant date fair value of options and warrants was $0.48 per share based on the Black-Scholes option-pricing model. The options and warrants expire five years from the date of grant.  During the year ended June 30, 2013, 325,215 options were forfeited.

On October 27, 2008, the Board of Directors (the "Board") granted 1,335,102 stock options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2008. In addition, the Board granted 705,302 warrants payments to consultants for payments of their services and incentive performance awards.  Further, 60,000 shares of restricted common stock were issued to a consultant as payment for services.  Of 1,335,102 stock options grant, approximately 464,102 were awarded to the board members for their services and were vested on the date of grant. Of 705,302 warrants issued, 240,302 warrants were vested immediately on the grant date. The remainder 871,000 stock options and 465,000 warrants were vested one-third immediately, one-third were vested on October 27, 2009 and the remaining one-third were vested on October 27, 2010, assuming the person receiving the equity awards is employed or being utilized by the Company at the time of vesting.  The exercise price of those stock options and warrants is $0.20 per share, which was the closing price of the common stock on the date of grant. The weighted average grant date fair value of options and warrants was $0.19 per share based on the Black-Scholes option-pricing model. The options and warrants expire five years from the date of grant. During the year ended June 30, 2013, 475,938 options were forfeited.

On April 18, 2008, the Board of Directors (the "Board") granted 148,571 shares of restricted common stock as payment for the services rendered by the board members for the year ended June 30, 2007 for those elected to receive common stocks and all shares were immediately vested.  In addition, the Board granted 1,074,666 stock options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2007.  The stock options were vested one-third immediately, one-third was vested on April 17, 2009 and the remaining one-third was vested on April 17, 2010, assuming the person receiving the equity awards is employed by the Company at the time of vesting. The exercise price of those stock options is $0.42 per share, which was the closing price of the common stock on the date of grant.  The weighted average grant date fair value of options was $0.32 per share based on the Black-Scholes option-pricing model.  The options and warrants expire five years from the date of grant.  During the year ended June 30, 2013, 110,000 options were forfeited and 503,080 options expired.

On August 6, 2007, the Board of Directors (the "Board") granted 484,056 non-qualified stock options to the Chief Executive Officer ("CEO") at an exercise price of $0.75 per share. These options were fully vested and immediately exercisable at the date of grant.  In addition, the Board granted 1,452,167 non-qualified stock options at an exercise price of $0.74 per share on September 25, 2007, as part of the CEO's employment agreement. The second stock options are vested and become exercisable 1/16th of the total 1,452,167 options on each three-month anniversary beginning on June 11, 2007.  The average grant date fair value of the options was $0.46 per share based on the Black-Scholes option-pricing model.  These options expire in August and September 2013, five years from the date of grant.
 
The weighted average grant date fair value of options and warrants granted during the fiscal years ended June 30, 2013 and 2012 were estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions used; risk-free interest rate of 3%; dividend yield of 0%; expected volatility of 91%; and estimated life of 5 years. Expected volatility is based on historical volatility of common stock.  The expected term of the options and warrants represents the period of time that options and warrants granted are expected to be outstanding and is derived from historical terms.

A summary of options for the years ended June 30, 2013 and 2012 is shown below:
 
 
  
June 30 2013
    
June 30 2012
  
 
  
Number of Shares
    
Weighted-Average Exercise
Price
    
Number of Shares
    
Weighted-Average Exercise
Price
  
Outstanding at beginning of year
    
4,083,970
    
$
0.58
      
4,794,270
    
$
0.57
  
Granted
    
-
      
-
      
-
      
-
  
Exercised
    
-
      
-
      
-
      
-
  
Forfeited
    
(911,153
)
    
-
      
-
      
-
  
Expired
    
(503,080
)
    
-
      
(710,300
)
    
0.82
  
Outstanding at end of year
    
2,669,737
    
$
0.60
      
4,083,970
    
$
0.58
  
Exercisable at end of year
    
-
              
4,083,970
          
Available for issuance at end of year
    
-
              
-
          
 
Note: Some options expired and some options were forfeited during the year ended June 30, 2013.  The following is a summary of warrants granted, exercised, canceled and outstanding involving the grants in the periods ended June 30, 2013 and 2012.
 
 
  
June 30 2013
    
   
June 30 2012
    
 
 
  
   
   
   
 
 
  
Number of Shares
    
Weighted-Average Exercise
Price
    
Number of Shares
    
Weighted-Average Exercise
Price
  
 
  
   
   
   
 
Outstanding at beginning of year
    
947,994
    
$
0.48
      
974,920
    
$
0.47
  
Granted
    
-
      
-
      
10,714
      
0.02
  
Exercised
    
-
      
-
      
-
      
-
  
Expired
    
(13,410
)
    
0.67
      
(37,640
)
    
0.96
  
Outstanding at end of year
    
934,584
    
$
0.36
      
947,994
    
$
0.48
  
Exercisable at end of year
    
934,584
              
947,994