Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS' EQUITY

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STOCKHOLDERS' EQUITY
 9 Months Ended
Mar. 31, 2015
Stockholders' Equity Note [Abstract]  
STOCKHOLDERS' EQUITY
NOTE 6 - STOCKHOLDERS’ EQUITY
 
At March 31, 2015, the Company had 300,000,000 shares of common stock, par value of $ 0.001 authorized for issuance, of which 99,464,112 shares were issued and outstanding. At the annual shareholders meeting held on February 17, 2015, the total authorized shares were increased from 145,000,000 to 300,000,000 as part of an approved amendment to the articles of incorporation. In addition the shareholders also approved the Company’s 2014 Equity Plan reserving 10,000,000 shares for issuance of stock options and restricted stock.
 
In addition, at March 31, 2015, the Company is authorized to issue up to 5,000,000 shares of preferred stock, par value of $0.001, in one or more classes or series within a class pursuant to the Company’s Amended and Restated Articles of Incorporation. As of March 31, 2015 and June 30, 2014 there are no shares of preferred stock issued and outstanding.
 
Holders of common stock are entitled to receive dividends, when, as, and if declared by the Board of Directors, out of any assets legally available to the Company. Dividends are declared and paid in an equal per-share amount on the outstanding shares of each series of common stock. To date the Board of Directors has neither declared nor paid common stock dividends to shareholders.
    
Common Stock and Warrants
 
Private Placements – Fiscal 2015
 
On July 31, 2014, the board of directors approved a private placement equity financing that is intended to raise up to a total of $990,000. In connection with this private placement, the Company is offering accredited investors units, consisting of 1,000,000 shares of common stock and 500,000 warrants at a purchase price of $90,000 per unit. As of March 31, 2015, we have sold 5.95 units to 14 investors for total gross proceeds of $535,500, pursuant to which we issued 5,949,999 shares of common stock and warrants to purchase up to 2,974,999 shares of common stock. The warrants are exercisable for three years and each warrant entitles the holder to purchase one share of common stock at $0.25 per share. SRA served as our placement agent. SRA earned a cash commission of $34,695 based on 9% of gross proceeds and have earned warrants to purchase 385,500 shares of our common stock at an exercise price of $0.09 for its services as our private placement agent. The cash commission of $34,695 was recorded as a cost of equity financing. The securities offered and sold in the Offering have not been registered under the Securities Act of 1933, as amended (“Securities Act”). The Securities were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506 promulgated thereunder.
 
Private Placements – Fiscal 2014
 
From January to March 2014, the Company conducted a private placement equity financing, pursuant to which the Company issued to accredited investors a total of 32.4 units, which consisted of 1,000,000 shares of common stock and 500,000 warrants at a purchase price of $60,000 per unit. The warrants are exercisable for 5 years and each warrant entitles the holder to purchase one share of common stock at an exercise price of $0.20 per share. This offering resulted in the receipt by the Company of gross proceeds totaling approximately $1,394,000 and the conversion of previously outstanding related party debt to equity in the amount of $550,000, and the issuance of 32,400,000 shares of common stock and warrants to purchase up to 16,200,000 shares of common stock. In connection with this offering a total of 12.5 Units were sold to Esenjay for total of $750,000. Of the total purchase price, Esenjay paid cash in the aggregate amount of $200,000 and converted a total of $550,000 of previously outstanding debt principal (See Note 4).
    
The securities offered and sold in this offering have not been registered under the Securities Act of 1933, as amended (“Securities Act”). The Securities were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506 promulgated thereunder.
 
SRA served as Company’s placement agent in connection with this offering and received cash compensation in the amount of 9% of the gross proceeds raised and a warrant to purchase the number of shares of common stock equal to 9% of the aggregate gross proceeds from the offering received by the Company from all investors placed by SRA divided by $0.06 per share. The Company paid SRA $107,460 and issued a warrant to purchase 1,791,000 shares of our common stock at an exercise price of $0.06 for its services as the Company’s private placement agent in this offering.
 
Debt Conversion with Related Party
 
In June 2014, the Company converted all of the then outstanding principal and accrued interest owed under various debt agreements with Esenjay totaling $2,586,000 and $304,000, respectively. Pursuant to this conversion, the Company issued 12.1 million shares of common stock-based on a conversion price of $0.24 per share. In addition, Esenjay was granted 3-year warrants to purchase 1.9 million shares of common stock at $0.30 per share, as an incentive for the conversion.
 
All of the above mentioned debt conversions have been accounted for as a capital transaction in accordance with FASB ASC Topic No. 470-50-40, “ Debt, Modifications and Extinguishments ”. Accordingly, no gain or loss has been recognized.
 
The securities offered and sold in the Offering have not been registered under the Securities Act of 1933, as amended (“Securities Act”). The Securities were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506 promulgated thereunder.
 
Advisory Agreements
 
Catalyst Global LLC. On October 14, 2013, the Company entered into a contract with Catalyst Global LLC (“CGL”), pursuant to which CGL agreed to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 450,000 shares of restricted common stock issued as follows: 180,000 shares upon signing and 90,000 shares on each of the subsequent three-, six-, and nine-month anniversaries of the contract. The fair value of the shares on the issuance date was recorded as a prepaid expense and amortized over the contract period. The initial tranche was valued at $0.05 per share or $9,000 when issued on November 8, 2013, the second tranche of 90,000 shares was issued on March 19, 2014 and was valued at $0.38 per share, or $34,000, the third tranche of 90,000 shares was issued on April 23, 2014 and was valued at $0.30 per share, or $27,000 and the fourth tranche of 90,000 shares was issued on October 15, 2014 and was valued at $0.12 per share, or $10,800. During the three and nine months ended March 31, 2015, we recorded expense of approximately $2,000 and $35,000, respectively, in connection with this agreement. During the three and nine months ended March 31, 2014, the Company recorded expense of approximately $4,000 and $5,000, respectively. As of March 31, 2015, the total remaining balance of the prepaid investor relation services was $0.
 
  On February 11, 2015, the Company signed a renewal contract with CGL, pursuant to which CGL agreed to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 450,000 shares of restricted common stock issued as follows: 150,000 shares upon signing and the balance vesting pro rata upon each of the three-, six-, and nine-month anniversaries of the contract. The initial tranche was valued at $0.07 per share or $10,500 when issued on February 17, 2015. During the nine months ended March 31, 2015, we recorded expense of approximately $2,000. As of March 31, 2015, the total remaining balance of the prepaid investor relation services was approximately $9,000.
 
Security Research Associates, Inc. On June 26, 2013, the Company entered into an agreement with SRA pursuant to which SRA agreed to provide business and advisory services. SRA served as our placement agent in connection with the Company’s 2014 and 2015 private placement offerings described above. In connection with these private placements, SRA was paid aggregate cash compensation in the amount of $142,155 and warrants to purchase a total of 2,176,500 at exercise prices ranging from $0.06 - $0.09 per share. Compensation under the SRA agreement is based on  9% of the gross proceeds raised and a warrant to purchase the number of shares of our common stock equal to 9% of the aggregate gross proceeds from the offerings received from all investors (excluding Esenjay) placed by SRA divided by $0.06 per share.
 
The Company entered into a renewal agreement with SRA on March 18, 2015 pursuant to which it retained SRA as the Company’s exclusive placement agent on a “best-efforts” basis in connection with private placement of stock or convertible securities by the Company. The engagement period commenced on the date of the renewal agreement and will terminate upon the earlier of the termination of the renewal agreement or July 31, 2015 no changes were made to terms of compensation., During the engagement period, the Company agreed that it will not retain any additional placement agents to perform the same or similar services to be performed by SRA under the renewal agreement and the Company will refer to SRA all offers and inquiries with respect to the financing by any person or entity, with the exception of participation by Esenjay Investment LLC.
 
Warrant Activity
 
Warrant activity during the nine months ended March 31, 2015, and related balances outstanding as of such dates are reflected below:
 
 
 
 
Weighted
 
Remaining
 
 
 
 
Average
 
Contract
 
 
 
 
Exercise Price
 
Term (#
 
 
Number
 
PerShare
 
years)
 
Shares purchasable under outstanding warrants at June 30, 2014
 
 
22,798,347
 
$
0.21
 
 
 
 
Stock purchase warrants issued
 
 
5,241,749
 
 
0.22
 
 
 
 
Stock purchase warrants exercised
 
 
—
 
 
—
 
 
 
 
Shares purchasable under outstanding warrants at March 31, 2015
 
 
28,040,096
 
$
0.21
 
 
2.25 – 4.75
 
 
Warrant activity during the nine months ended March 31, 2014, and related balances outstanding as of such dates are reflected below:
 
 
 
 
Weighted
 
Remaining
 
 
 
 
Average
 
Contract
 
 
 
 
Exercise Price
 
Term (#
 
 
Number
 
Per Share
 
years)
 
Shares purchasable under outstanding warrants at June 30, 2013, repriced
 
 
2,907,347
 
$
0.27
 
 
3.21
 
Stock purchase warrants issued
 
 
17,991,000
 
 
0.19
 
 
5.00
 
Stock purchase warrants exercised
 
 
—
 
 
—
 
 
 
 
Shares purchasable under outstanding warrants at March 31, 2014
 
 
20,898,347
 
$
0.20
 
 
3.21 – 5.00
 
 
Stock-based Compensation
 
During the nine months ended March 31, 2015, the Company issued 400,000 non-qualified stock options of the Company’s common stock to a consultant, pursuant to a consulting agreement entered into in December 2013. These options were valued using the Black-Scholes model on the day they were originally due to be issued per agreement, and the Company recorded an accrual in the amount of $76,000 during the year ended June 30, 2014. Such options were issued in July 2014 when the current fair value of $64,000 was determined using the Black-Scholes model. The change in fair value of $12,000 was recorded as a reduction to stock based compensation expense during the nine month period ended March 31, 2015. The Company has not registered the shares of common stock underlying stock options outstanding as of March 31, 2015.
 
Activity in stock options during the nine months ended March 31, 2015, and related balances outstanding as of that date are reflected below:
 
 
 
 
 
 
Weighted
 
 
 
 
Weighted
 
Average
 
 
 
 
Average
 
Remaining
 
 
Number of
 
Exercise Price
 
Contract
 
 
Shares
 
Per Share
 
Term (# years)
 
Outstanding at June 30, 2014
 
 
6,335,695
 
$
0.19
 
 
5.10
 
Granted
 
 
400,000
 
 
0.06
 
 
1.95
 
Exercised
 
 
—
 
 
 
 
 
 
 
Forfeited and cancelled
 
 
(634,338)
 
 
 
 
 
 
 
Outstanding at March 31, 2015
 
 
6,101,357
 
$
0.16
 
 
7.73
 
Exercisable at March 31, 2015
 
 
4,394,399
 
$
0.15
 
 
7.40
 
 
Activity in stock options during the nine months ended March 31, 2014, and related balances outstanding as of that date are reflected below:
 
 
 
 
 
 
Weighted
 
 
 
 
Weighted
 
Average
 
 
 
 
Average
 
Remaining
 
 
Number of
 
Exercise Price
 
Contract
 
 
Shares
 
Per Share
 
Term (# years)
 
Outstanding at June 30, 2013
 
 
2,527,389
 
$
0.15
 
 
5.85
 
Granted
 
 
5,310,973
 
 
0.17
 
 
8.89
 
Exercised
 
 
—
 
 
 
 
 
 
 
Forfeited and cancelled
 
 
(792,836)
 
 
 
 
 
 
 
Outstanding at March 31, 2014
 
 
7,045,526
 
$
0.18
 
 
8.57
 
Exercisable at March 31, 2014
 
 
3,317,097
 
$
0.14
 
 
8.02
 
 
Stock-based compensation expense recognized in our condensed consolidated statements of operations for the nine months ended March 31, 2015, and 2014, includes compensation expense for stock-based options and awards granted based on the grant date fair value. For options and awards granted, expenses are amortized under the straight-line method over the expected vesting period. Stock-based compensation expense recognized in the condensed consolidated statements of operations has been reduced for estimated forfeitures of options that are subject to vesting. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
 
The closing price of our stock at March 31, 2015, was $0.06, and as a result the intrinsic value of the exercisable options at March 31, 2015, was $13,000.
 
We allocated stock-based compensation expense included in the condensed consolidated statements of operations for employee option grants and non-employee option grants as follows:
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
 
March 31,
 
March 31,
 
March 31,
 
March 31,
 
 
 
2015
 
2014
 
2015
 
2014
 
Research and development
 
$
3,000
 
$
4,000
 
$
9,000
 
$
7,000
 
General and administration
 
 
58,000
 
 
129,000
 
 
165,000
 
 
186,000
 
Total stock-based compensation expense
 
$
61,000
 
$
133,000
 
$
174,000
 
$
193,000
 
 
The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the grant date using the assumptions (annualized percentages) in the table below:
  
Nine months ended March 31,
 
 
2015
 
2014
 
Expected volatility
 
 
100
%
 
 
218
%
Risk free interest rate
 
 
0.96
%
 
 
0.7% to 1.7
%
Forfeiture rate
 
 
0
%
 
 
13
%
Dividend yield
 
 
0
%
 
 
0
%
Expected term
 
 
3 years
 
 
 
3-5 years
 
 
The remaining amount of unrecognized stock-based compensation expense at March 31, 2015, is approximately $231,000, which is expected to be recognized over the weighted average period of 1.34 years.